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@macrocephalopod

Paul Allen, Vice President M&A, Pierce & Pierce (Sie/Hir) | Vegan | Silence is Violence | Women’s Rights Are Human Rights | ACAB (Assigned Cephalopod At Birth)

Joined December 2020

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Kris Sidial‏ @Ksidiii 13 Feb 2021

Replying to @macrocephalopod

The APs don’t have to necessarily keep a matched book so that VX future being bought isn’t a guarantee... ya know. On top of that the APs are going against the prevailing price (if demand is high they are coming to force this down).... + share creation dilutes the reflexivity

1 reply 0 retweets 5 likes

Kris Sidial‏ @Ksidiii 13 Feb 2021

Replying to @Ksidiii @macrocephalopod

This process isn’t really a cascading gamma effect the way how a supply & demand driven asset that needs to be hedged by MMs generally operate, ya know. That IV price is really the goal of the AP, which isn’t bound to the strongholds or keeping a pure “matched book”

2 replies 0 retweets 5 likes

Mitchell Rosenthal‏ @M1tchRosenthal 13 Feb 2021

Replying to @Ksidiii @macrocephalopod

learning a lot here, anything you suggest reading to learn more about authorized participants for these types of products?

1 reply 0 retweets 5 likes

Kris Sidial‏ @Ksidiii 13 Feb 2021

Replying to @M1tchRosenthal @macrocephalopod

Uhhhh i don’t know anything off the top of my head besides Vance’s work...(which I’m a fan of) He talks about this process a bit here https://www.google.com/amp/s/seekingalpha.com/amp/article/3012686-how-does-uvxy-work …

1 reply 1 retweet 17 likes

Mitchell Rosenthal‏ @M1tchRosenthal 13 Feb 2021

Replying to @Ksidiii @macrocephalopod

This is perfect!

2 replies 0 retweets 0 likes

Zackery Parker ‏ @mistman78 13 Feb 2021

Replying to @M1tchRosenthal @Ksidiii @macrocephalopod

I asked Cem his opinion if a Gamma Squeeze was possible FWIW- "Given the right order type and size at the right time...absolutely. It’s happened before. That said, UVXY is not the most effective place to attack, margin/convexity tails in SPX and VIX drive max leverage."

2 replies 0 retweets 5 likes

macrocephalopod‏ @macrocephalopod 13 Feb 2021

Replying to @mistman78 @M1tchRosenthal @Ksidiii

@Ksidiii can you explain what you mean by a “matched book”? You mean a book where each UVXY share held long or short by APs is offset with the matching amount of VIX futures?

1 reply 0 retweets 0 likes

onceuponabluemoon‏ @enymarra 13 Feb 2021

Replying to @macrocephalopod @mistman78 and

If you don't mind explaining, I thought the XIV blowup of 2018 was because weight of retail buying (at its peak XIV and SVXY were 4b in AUM) had caused the beta of the VIX to morph relative to the SPX. Hence a 4% drop in S&P caused a 20x spike. Why wouldn't the reverse be true?

1 reply 1 retweet 0 likes

macrocephalopod‏ @macrocephalopod 13 Feb 2021

Replying to @enymarra @mistman78 and

The XIV blowup was self-reinforcing. Vol had been compressed by huge interest in vol selling (high AUM in inverse VIX ETNs) so a small absolute increase in VIX represented a large % in crease, which meant a large loss for XIV. It was then compounded because XIV was looking at

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macrocephalopod‏ @macrocephalopod 13 Feb 2021

Replying to @macrocephalopod @enymarra and

a NAV which was down by half but a position which was up by half in value, they therefore had to buy back many times the ADV of VIX futures to maintain their -1 leverage — this massive buying is what caused the VIX to rocket even further and what caused the ETN to blow up.

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macrocephalopod‏ @macrocephalopod 13 Feb 2021

Replying to @macrocephalopod @enymarra and

macrocephalopod Retweeted macrocephalopod

Thread got broken, follow it herehttps://twitter.com/macrocephalopod/status/1360594877365563403 …

macrocephalopod added,

macrocephalopod @macrocephalopod

Replying to @macrocephalopod @enymarra and 3 others

So it’s a combination of massive AUM and a leverage factor that means for every 1% increase in VIX futs they had to buy back 2% of their position. With UVXY the AUM is smaller plus the 1.5 leverage factor means they only buy 0.75% of their position for a 1% increase in VIX futs

6:25 AM - 13 Feb 2021

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