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Then throw out the nonsense explanations (front running, “the algos” without any eleboration, “passive flows” without an explanation of why they would be counter-trend) or the irrelevant ones (eg charm flows given we are not near an opex)
That leaves us with one possible mechanical explanation, dealer hedging due to positive gamma exposure which *could* cause an intraday reversal although unlikely to cause one as big as what we saw on Friday. A partial answer, not the whole answer.
But look, we don’t need (nor should we expect) mechanical explanations for every market move! Sometimes the market moves just because a big buyer came along for reasons completely unrelated to whatever else was going on at the time. Sometimes it reverses because it looked ...
undervalued to someone and they stepped in to buy at a discount. Sometimes it moves for no goddamn reason whatsoever. If market moves were predictable for mechanical reasons there would be a lot more people keeping quiet and making money off it, not coming onto twitter...
and shouting about it to anyone who will listen. Searching for an explanation for every market move is a game for fools and charlatans. The best most of us can do is stay focused, stick to your process and keep searching for that 1% signal in the noise.
For this one a dealer hedging thesis also doesn't make sense on an acute turn unless it was a point of trade hedge against a big account that came in and lifted size. If that's the source I'd just attribute the reversal to the giant flow (not the knock on hedging effect).
Yes, you could argue "dealer hedging" was the physical culprit but I'd prefer to think of dealer hedging effects as those which come from rebalancing their books. Point of trade hedging flows are just accounting attribution. The whale flow is the reason, dealers = fingerprints
https://twitter.com/ChrisGeorgiadi2/status/1368244332118048772?s=20 … I just posted there after seeing this on my TL, how do you feel about this as an explanation in conjunction with dealer gamma exposure hedging.
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