macrocephalopod

Oh god, the replies to that tweet are a greatest hits of fintwit’s worst takes. Passive inflows, dealer hedging, negative gamma exposure, positive gamma exposure, vanna/charm, “the algos”, front running... please give me a second while I claw out my goddamn eyes.https://twitter.com/swiss_quant/status/1368114339094425602 …

Some of those might be a partial answer? Most of them are either irrelevant, too small to matter, would act in the wrong direction, or flat out contradict each other. No attempt made to explain the mechanism or size of the effect, just screaming stupid buzzwords into the void.

The first question I’d ask is “are we actually seeing a surprising number of intraday reversals?” — it definitely feels like we are but I’d want to see some stats on that to see if there’s actually anything to explain or whether this could just be seeing patterns in noise.

Then I’d throw out the explanations that can’t possibly work eg negative gamma exposure, CTAs, risk parity, target vol funds... these would all act in the wrong direction (they are momentum-reinforcing) so can’t be a useful part of the explanation.

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.