High gamma new assets
November 8, 2021
–TSLA down this morning as Musk asked the twitter universe if he should sell stock and the answer was ‘yes’. If I am seeing the correct figures the stock is down about 5% from Friday’s market cap of $1.227 trillion, or around $60b. Bitcoin is pressing new highs, currently 65990 vs ath on Oct 20 of 66976. Ethereum is making a new high at 4731. A lot of capital is changing hands on relatively new assets these days.
–Friday saw yields continue to fall, with tens down 7.3 bps to 1.45%. Tuesday features the ten-year auction, sandwiched between 3s today and 30s Wednesday (early due to Veteran’s Day on Thursday). The curve flattened with 2/10 down 5.5 to 105.5 bps. Implied vol firmed quite a bit in treasuries, indicating fear has shifted to the idea of lower yields. I don’t know that I have seen this before, perhaps it has occurred and I didn’t notice, but TY week2 calls traded more volume than the regular TYZ calls, 269k vs 215k. The two expiration days are: Week2, this Friday Nov 12 (day after Vet’s Day) and TYZ Friday Nov 26 (day after Thanksgiving). There was a new block buyer of 70k TY2X 132.75 call for 4/64 that sparked week-2 activity. Settled 9 vs 131-265. Several recent analyst notes have pointed out that the huge volume of equity options has surpassed that of underlying stocks, and that many of these trades are high gamma plays, with the implication they are spurred by message boards. In any case, a snapshot this morning of 2MX1C 132.75 (bbg symbol for week 2 calls) is 3/4 vs 131-16+. For the sake of comparison, TYZ 132.75c are 7/8.
–Inflation data this week with PPI tomorrow and CPI on Wednesday. CPI expected 5.9% yoy vs last of 5.4. Can TY rally from a sub-1.5% yield if CPI is ‘better than expected’ 5.6%? The answer of course is ‘probably’ but I still have a hard time wrapping my head around demand for treasuries given the macro backdrop. November midcurve options on euro$’s expire Friday. 0EX1 9925 straddle settled 10.5 Friday vs underlying EDZ2 9926.5. Wide breakevens of 9935.5 and 9914.5 for 5 days.
