Attention Derivatives Traders: Here Are “The Top 17 Themes To Remember From 2017”

Last week, as part of its must read 2018 Outlook piece, Bank of America’s derivatives team pointed out two particularly notable things: the first was BofA’s version of the (central-bank mediated) “feedback loop” diagram that keeps volatility record low and grinding even lower, as selling of vol has become a self-reinforcing dynamic, in which lower VIX begets more vol-selling by “yield-starved investors”, leading to even lower VIX as the shock that can reset the feedback loop is no longer possible, and thus the strike price on the Fed’s put can not be put to a market test, which also results in even greater market fragility and assured central bank interventions…

… and a chart suggesting that the market generally broke some time in 2014, when the “behavior of volatility entirely changed, with volatility shocks retracing at record speed. Investors no longer fear shocks, but love them, as it is an opportunity to predictably generate alpha.”

This post was published at Zero Hedge on Dec 12, 2017.

 

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