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Zero Volatility


I actually feel quite at home on the range


I have been quiet. There is not much more that I have to say to Minyans as you know my basic views. This is a purely liquidity driven market, a market that can be derailed (when it is absent of value) at any time, for any reason.

And there is cause for concern. With the proliferation of new funds that "earn income" by selling volatility into the market, option prices have now entered the danger zone.

The sellers who are short gobs of cheap gamma (although they don't look at it that way) have gotten traders long cheap gamma. With a market in a trading range, those traders are desperate to trade that gamma. That further compresses volatility and encourages funds to sell more. This builds and builds. The risk grows that when a break-out occurs it will be severe as those short the gamma finally realize just how much risk they have taken, all too late. The traders long that gamma won't help them out...their long gamma will disappear into profits.

So we have zero volatitility until then. But don't be fooled...the risks have just grown larger and larger.

All this within a macro environment the likes of which the world has never seen. Globalization has introduced risks and imbalances that may never create a problem, but also a world in which no one knows just how it will turn out.

I am one of those traders who has been accumulating the gamma those sellers have been "giving away." I am not desperate to trade the gamma; I look at it like a great risk/reward bet.

If this market now breaks I will make returns the likes of which my investors will not expect. If it does not I believe I can break even.

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