Markets will have to sustain another scary revelation

While the stock market is reacting to dollar strength on Tuesday, there will be another force hitting the economy later this year.

You are beginning to see this force in the large numbers of resignations in business and politics. Continue reading


Gold, bitcoin loving the sturm und drang of markets

Before you could figure out how the market would react this morning to flat retail sales for the holiday quarter, Dow futures were up bigly on Wednesday.

Then before you could look up the definition of inflation this morning, the market was down “bigerly” on the Consumer Price Index report. Continue reading

Derivative on volatility index squeeze leaves blood on the Street

So what is driving the market turmoil over the last three trading sessions, it’s volatility.

No, not volatility per se, but the derivative option trades connected with volatility index.

The VIX — or fear index — soared more than 260% over last three days, and was over 50, which is the highest it’s been since 2008 financial crises.

So one of the derivative options off of the VIX is the XIV Exchange Traded Note, which was closed out today due to 95% losses on the VIX short squeeze.

Ok, now in English. If you wanted to bet against volatility rising you could take this note (XIV) and use 20-30 times leverage with no problem. Until there is one as it became a very crowded trade.

By Friday morning with hints of a memo coming out later in the day charging Dept. of Justice and FBI being crocked, the VIX started rising, which put pressure on the XIV.

By Monday morning when options trading opened up, the VIX was soaring. By noon there were signs of large funds imploding over being squeezed by their XIV positions and began selling the kitchen sink to get out of the trade.

That’s when the Dow was crashing. Hitting -1,500 points around 1PM Monday. As I wrote at the time that the Plunge Protection Team stepped in to bolster the market and cut the point loss in half in the next 30 minutes.

I believe we will hear Wednesday which funds were caught up in the XIV carnage and will need to close down. Given the dramatic moves — reminiscent of bitcoin pricing in December — there must be some blood on the street.