25/09/18

Understanding The Volatility Storm To Come, Part 3: The Medium Is Liquidity... And It's Vanishing



----
Understanding The Volatility Storm To Come, Part 3: The Medium Is Liquidity... And It's Vanishing
// RSS

Authored by Christopher Cole via Artemis Capital Management,

Read Part 1: Fragility In The Market's Medium, here...

Read Part 2: Volatility Reflexivity and Liquidity, here...

...what made February so scary is that the very medium of the markets... the water... the liquidity... vanished. Every fish was on dry land. Look at the charts below from NANEX showing tick-by-tick liquidity of S&P 500 index E-minis for visual evidence of the stark deterioration. The average number of S&P 500 e-mini contracts to be bought and sold at the best price collapsed 95% from late-2017 to February-March 2018. From our trading desk we observed that moving just 200 E-minis, representing just $26mm of S&P 500 index delta exposure, could have caused a $22 trillion market to move multiple handles, up or down. YIKES!

The liquidity crisis in February extended beyond derivatives. The SPDR S&P 500 ETF Trust ("SPY") is one of the most liquid exchange traded funds in the world with a capitalization of over $260 billion. Normally this ETF trades very tightly with an average bid-ask spread of only 1 cent. On February 5-6th the average spread blew out to ....

Posta un commento