Remembering the Lehman Shock and how to respond【Shima Chikarao's Real-World Real Trades】2018/2/6
Remembering the Lehman Shock and respond accordingly.
From the February 6, 2018 edition.
U.S. stocks fell sharply, and the Nikkei Average today also fell 1,071 points, down as much as 1,604 points at one point. The market turmoil may be due to rising U.S. interest rates squeezing risk assets, but the reason for the "rapid variation" is that the market is "volatility short"; in plain terms, there are players selling a large amount of options.
Earlier, I think I explained the term "Global Short Volatility Strategy." The 2017 market was characterized not only by rising risk assets but also by extremely low market volatility—the unusual aspect. In other words, there were huge players selling market volatility, keeping the market paralyzed. When you sell options, there are players who end up buying options, and they hedging via delta hedging causes the market not to move.
However, on the other hand, when the market moves significantly, the volatility sellers must provide large-scale selling in risk hedging. This was the biggest risk in 2018. Yesterday, volatility-selling quant funds and the like likely reached a trigger point where they had to cut losses. As a result, many similar funds simultaneously triggered stop-losses, leading to the sharp move.
The real economy is sound, and there is no excessive leverage in financial institutions like during the Lehman Shock. Therefore, it should not be as severe as 2008, but instead there is excessive volatility-short in the market, and because of that the market will move a lot from here on.
A risk-off market is the baseline, and in the near future there may be phases where the yen strengthens further or stock prices fall, but once it starts to recover, it can rebound strongly.
Sorry, I spoke about something a bit difficult to understand, but going forward it will be basically risk-off and move a lot. However (as in the Lehman Shock), the rebounds will be strong, so keep excessive risk under control and take profits moderately on pullbacks.
Since the French presidential election, we have basically been bullish on the euro and euro-yen, but that pace seems to have ended for now.
Currently I am short USD/JPY and short GBP/JPY. Not at current levels, but I will buy back a little in preparation for a rebound. Position sizes are kept small. In this kind of market, there will be many opportunities going forward.
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