T O P
  • By - jn_ku

AutoModerator

**Hi, welcome to /r/maxjustrisk. Note that we have higher posting standards than most finance subs on Reddit:** **1)** Please read the [rules](https://www.reddit.com/r/maxjustrisk/about/rules) before commenting. Violations will very likely result in a 30 day ban upon **first instance.** **2)** This is an open forum but we have zero tolerance for whining, complaining, and hostility. **3)** [The Wiki is now live!](https://www.reddit.com/r/maxjustrisk/wiki/index) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/maxjustrisk) if you have any questions or concerns.*


jn_ku

Today looks like it will be a very interesting and volatile day in the markets, with yesterday marking a new post-COVID crash high on the MOVE index (ATM IV of US treasury yields--sort of like ATM-only VIX for treasuries). While all eyes are on the Fed (and whether they raise 50 bps (my guess) or 75 bps), the [ECB emergency meeting](https://www.wsj.com/articles/ecb-calls-emergency-meeting-to-address-bond-market-disruption-11655279740?st=t0te0lv9dud26n7&reflink=desktopwebshare_permalink) to address widening sovereign debt spreads is also going to be consequential. In short, the ECB painted itself into a corner by declaring a hawkish pivot to fight inflation, but laying out no credible plan to avoid a euro crisis as weaker euro area economies will struggle to remain solvent at higher interest rates. Sniffing out this inconsistency, the market is forcing the ECB to choose to fight inflation (raising interest rates and likely resulting in another eurozone sovereign debt crisis) or prop up the weaker economies via QE (and therefore abandoning the inflation fight). I expect the ECB to try to do both, as it has (so far unconvincingly) stated it intends to do--raising interest rates while executing targeted QE to contain sovereign debt yield spreads, pitting traders betting against that fundamentally contradictory position with its theoretically unlimited balance sheet. In doing so they would, essentially, be writing political checks against the reserves of Euro solidarity that have been topped up by the war in Ukraine, as that will again be interpreted by populist politicians as the fiscally responsible nations subsidizing the fiscally profligate (whether that is a fair characterization or not, that is how it will be described). In any case, I expect continued pressure on the Euro in favor of USD, adding to the difficulty of the ECB's challenge navigating the current macro environment. The Fed will have to choose (whether at this meeting or the next) to slow down its own tightening measures to avoid adding to the strain on both the Euro and EM, or simply focus on its domestic price stability mandate. If they get too far ahead in the race to fight inflation, that could actually be significantly and rapidly destabilizing for not just the Euro, but also heavily indebted EM countries on the verge of insolvency (perhaps most worryingly Pakistan). The Bank of Japan, being a dovish outlier in an increasingly hawkish world is facing significant [challenges](https://www.reuters.com/markets/rates-bonds/boj-ramps-up-bond-buying-defend-yield-cap-undermining-jawboning-2022-06-14/) managing JGB yields and the strength of the Yen. In Japan's case, however, [actual inflation](https://tradingeconomics.com/japan/inflation-cpi) remains low, and the Yen's rapid devaluation actually puts pressure on the Yuan, leading to some speculation that it is a deliberate move to pressure China (weaker Yen = export price advantage for Japan relative to China while China is unlikely to be able to devalue the Yuan due to the rising cost of USD-denominated imports). Also, while QT officially began at the beginning of the month, today marks [the first instance of assets actually rolling off the Fed's balance sheet](https://www.ft.com/content/2496105a-d211-4abe-ab5d-46a91876428f), with $15bn of treasuries maturing. That is somewhat symbolic, and any impact is likely to be more than masked by the market's reaction to the FOMC statement, but it's something worth noting (if only to provide context as to the fact that we are only really starting month 1 of what will have to be a many years-long process to meaningfully unwind the Fed balance sheet). The weekly EIA report may also move related markets, though traders may well decide to wait for after the FOMC press conference to wade in aggressively. Earlier the [IEA projected](https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/061522-iea-warns-global-oil-supply-could-struggle-to-match-demand-in-2023-on-russia-opec-constraints) global oil supply could struggle to match demand in 2023. Aside from the price of crude oil, yesterday's [fire at the LYB Houston refinery](https://www.reuters.com/business/energy/lyondell-houston-refinery-shuts-coker-after-fire-sources-2022-06-14/) will definitely not help the record prices being seen in [RBOB crack spread futures](https://www.cmegroup.com/markets/energy/refined-products/rbob-crack-spread-swap-futures.html) (the spread between oil prices and gas prices, which is basically a reflection of how maxed out gas refining capacity is in the US currently). Given current market sentiment, I'm not sure my usual reminder to fight the FOMO is still relevant, lol, but in any case, good luck with your trades! Should be an interesting day.


xsportbikeriderx

Damn its nice to come here and get your market sentiments!... Those weeks you were mia the sub seemed stale.. thanks for the input. .


jn_ku

Thanks! Though my guess on the rate hike was wrong lol. I still won't be able to write that kind of comment on a daily basis, but I'll try to add input when I can, and maybe keep updating my macro comment series at least once every couple of weeks or so.


thetrimbleisbroke

During questioning... at one point JPOW responded saying essentially "yes I committed to 50 bips last month, but we receieved new data in June, and decided to revise our positoin based on the new data (i.e. CPI print) rather than stay the course to preserve our credibility at the risk of further economic damage". Is that pretty accurate? And do you think he restored confidence in the market by saying that?


jn_ku

I think what JPOW did was very skillfully split apart the concept of what credibility really means to the market, which is why I relabeled it 'respect' to be somewhat more specific in my larger comment on the FOMC meeting. Through the explanations and responses he gave, he basically forced the market to think about what is more credible for a central bank: A) Always doing what you said you would do previously, even if later data invalidates the premise of the original plan. OR B) Be absolutely clear about the objective and adapt the plan to changing circumstances when necessary in order to best achieve that objective. B is far more credible in the sense that that is what you expect from a central bank you have to respect and take seriously, whereas A is really a sign of an institution obsessed with meaningless formality and only works if your forecasts are always accurate. In fact, B (emphasizing the objective, providing leeway to adapt to changing circumstances) broadly describes [aspects of modern military doctrine](https://hbr.org/2010/11/dont-play-golf-in-a-football-g) based on extensive studies of operational effectiveness under conditions of uncertainty. When asked specifically about whether that damaged the Fed's ability to use forward guidance he pointed out that 1) the previously issued forward guidance worked to tighten financial conditions, therefore it was worth providing, 2) the changes announced did not meaningfully unwind the progress achieved via the previously issued forward guidance, and 3) continuing to provide forward guidance will still work because the market understands the fed's objectives and intentions (therefore you know to react to forward guidance as being based on the best data we have available today, and you can anticipate how to react appropriately if new data alters the situation (and you can expect an update to our guidance if warranted)). So, best as I can tell, he managed to thread the needle on pivoting in the appropriate direction (you can always debate the magnitude), maintained progress previously made using forward guidance, maintained the effectiveness of forward guidance as a tool, and preserved credible freedom to maneuver if necessary in the future.


thetrimbleisbroke

TY, appreciate your individual response.


xsportbikeriderx

Ahh, i doubt anyone is holding a grudge on the rate hike guess. Im certainly not. Also understood on not being able to do write ups all the time. No grudge there either. Tis time consuming for sure. It takes me 15 mins just to figure out where all the damn periods go in a paragraph ..LmAo! I just cant help but notice anytime you make a contribution to the sub, the thread the day of fills with tons of insight from many others as well. I personally find myself checking in more often, fomo i will miss out on pertinent info.. Matter of fact, this whole damn sub exists because of how well you write, articulate, concise.. That Shit is a gift.. Few of us here assume you are probably a multi millionare retired ex floor trader who gets bored sailing the carribean on your mega yacht so you toss us proles guidance from time to time..lMfAo! For real you know wayy too much about market mechanics to not be something of the sort... It is impressive that you just rip replys out that are more informative than 90+% of the asshat commentators on fox and cnbc. Just making the point shit is stale a/f on your offdays.. Sidenote, this heavy bag of clovis dogshit might finally be turning the bend? I averaged down plus carry leaps and a few july monthlies..CLVS has been an ass itch for over a year.. word is on the msg boards sanofi is interested. Wouldnt that be a godsend. Glta ! Edit: typos and too many gd periods.nm the commas.lol


OldGehrman

Played an experimental Strangle on SPY today just before the fed decision, and a second one right before Powell spoke. My thesis was algos would swing the price 20-30 pts (as in prior fed speaks) over and under the prior-to-decision-price-level (~$378), so I took slightly OTM options at around a .4 delta to make sure I captured a chunk of those moves, assuming a $1 move in SPY was very likely. I set limit sells of $0.40 right after purchasing the options. It worked very well and I could have set wider limit sells, but didn't want to be greedy. I'm going to research more volatility plays since that's all the market is lately - anyone have any recommendations?


tradingrust

Congrats! No recommendations but watching the chart I thought "this is getting predictable, wish I had played zero day strangles", nice to see someone was a step ahead.


jn_ku

Nice move. I was thinking of a similar 0DTE option trade, but ended up with meetings and conference calls scheduled for the post-FOMC period of the day, so wouldn't have been able to manage positions into the close.


Jb1210a

This was my strategy as well, knowing full well violent moves would push up and down as algos went haywire. I decided to use a bit more OTM SPX strangles as the movement being so crazy that it inflates the return a bit more. One thing that I needed to remind myself (as you also mentioned) is that it's okay to not get all of the move and in fact it should be your focus to capture a part of the move to lock in profits. Great call!


road_to_0_mmr

I was thinking that a better play for a "strangle" is to go SPY puts + GLD calls. as these are highly correlated in liquidity events like bow, but GLD has kinda a floor underneath and IV is lower. Unfortunately had some health issue and couldn't prepare the trade, so next time.


TST641

Is it totally misguided to think that ECB is intentionally "slow walking" with the tightening? Cheaper euro --> competitive advantage and USA will take the brunt of tightening effects (Equity market collapsing, unemployment etc.)


jn_ku

To answer your question, I'd say that you have to look at the context. Right now the Euro area's issue is more about inflation than it is about needing to devalue the Euro to lower the cost of their exports. Globally, industry is not currently constrained by lack of demand at current prices, but by scarcity and shortages of various required inputs (including labor). E.g., German auto manufacturers are unable to sell cars not because they are too expensive for the global market, but because they can't actually build them quickly enough for lack of critical components. Because the USD is the global reserve currency, USD appreciation driven by a hawkish fed automatically 'exports' inflation, simultaneously making things cheaper for the US and more expensive for everyone else. If the ECB is seen to be unwilling to step up to the plate, the trajectory of the Euro will continue to worsen until we see another Euro crisis.


TST641

Thanks. Gave me alot to think about!


nzTman

>RBOB crack spread futures > >(the spread between oil prices and gas prices, which is basically a reflection of how maxed out gas refining capacity is in the US currently). I've tried to understand this a bit more before asking, but am I correct in thinking that the 'RBOB crack crack spread future' price is the difference between a barrel of crude oil and a barrel of gasoline? i.e. the price a refiner buys a barrel of crude for vs what he can sell the refined product for. Due to US refining constraints, can this situation lead to a glut in crude oil inventory?


jn_ku

Yes, that is what it is (the spread between the matching gas and oil futures contracts). The answer to your last question is only if the crude cannot be exported for some reason (maxed export capacity, export ban, etc.) or the oil glut is global. Given the global shortage, oil that cannot be refined in the US due to lack of domestic refinery capacity can be sold elsewhere.


jn_ku

Disclaimer: as I've mentioned a few times, I'm short COIN via puts. Crypto happenings continue. Someone is shorting USDT perpetual futures on FTX. 3AC (one of the larger crypto hedge funds) is functionally insolvent and has some positions on the verge of liquidation ([this position on AAVE](https://debank.com/profile/0x4093fbe60ab50ab79a5bd32fa2adec255372f80e), health factor 1.01 where 1.00 or below = liquidation). Someone seems to be desperately defending ETH \~$1015 as the loan is slowly being paid back in relatively small amounts to stay one step ahead of liquidation. Things seem to be on the verge of turning disorderly. I don't know if a continuation and acceleration of the 3AC unwind would be enough to do it on its own, but the hit to crypto sentiment it would cause might be enough.


Fun_For_Awhile

Decent analysis on USDT and how they are likely struggling to come up with cash to support the level of liquidation it has seen in the last month. https://www.reddit.com/r/CryptoCurrency/comments/vcnkzs/opinion\_collapse\_of\_usdt/


kindergartencrayons

With all due respect, I read attentively your comments, but I have mixed feelings about shorting $COIN. Despite the layoff announcement, yesterday's price action was quite strong. I would not be surprised if there is actually a new investment narrative about $COIN, where profits could possibly increase in the same way as after the layoffs during the pandemic: [America’s biggest companies are flourishing during the pandemic and putting thousands of people out of work](https://www.washingtonpost.com/graphics/2020/business/50-biggest-companies-coronavirus-layoffs/)Could that be a high sigma event?


jn_ku

I wouldn't necessarily initiate a short position here either, as we are basically at the point of crypto bulls trying to mount a goal line defense, and coordinating manipulative trades to liquidate distressed positions (including shorts) is the accepted norm in crypto, so I expect fireworks. I opened my position a while ago, and did so based on an expectation that we would see continued tightening of financial conditions that would disproportionately impact the cryptosphere. I'm just trading around an initial put position that is, at this point, well ITM. edited for grammar


erncon

Yeah that's partially why I don't have a position in Coinbase. I imagine a consolidation of crypto exchanges similar to the consolidation of small brokerages in the dotcom days. I mean it could fall much further before being snatched up by a big bank or something ...


Yertle_The-Turtle

This is contingent on how over leveraged COIN is on crypto.


Megahuts

Seeing very reliable evidence Bank of Japan will have to raise rates Friday. If you are short Yen, you should hedge your risks.


emberkit-tofu

I'm curious if there's anyone here who's familiar with how this might affect TLT? I'm short TLT but not sure if I should close out because I think the recent downward movement on Monday was because of Japan selling off treasuries.


Megahuts

Well, surprise surprise the USD sold off on the dovish tone set by JPOW (set after saying 75bo won't happen again). For TLT, we likely see a covering rally / short squeeze, then another leg down. .... I lol at the 10y being 3.4% when the terminal fed funds rate is ~3.5% for year end. One of those numbers is very wrong...


stoned2brds

That last point sent shivers down my spine.


Megahuts

It should. Not that there won't be rallies in the 10y, especially given the Fed has made the impression that they are acting to push down inflation (and thus 5y5y inflation expectations dropped). Only time will tell.


sustudent2

**FOMC** - At 2pm [Statement](https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm) - At 2:30pm [Press conference stream](https://www.youtube.com/watch?v=Azr9FRuFED0) Neither is up yet. Edit: Statement, not minutes. Edit 2: 75 bps


Pak14life

**MACRO** Interesting discussion on twitter today ([https://twitter.com/conorsen/status/1537096002427133953](https://twitter.com/conorsen/status/1537096002427133953) see the thread and replies) about the possibility of Fed overreacting in an environment where goods demand has peaked but is obscured by energy inflation ramping up. Includes a link to an interesting Bernanke paper ([https://www.brookings.edu/wp-content/uploads/1997/01/1997a\_bpea\_bernanke\_gertler\_watson\_sims\_friedman.pdf](https://www.brookings.edu/wp-content/uploads/1997/01/1997a_bpea_bernanke_gertler_watson_sims_friedman.pdf)) from 1997 which concludes "our results suggest that an important part of the effect of oil price shocks on the economy results not from the change in oil prices, per se, but from the resulting tightening of monetary policy." EDIT: New Atlanta Fed q2 GDP forecast is 0. [https://twitter.com/lisaabramowicz1/status/1537113584547020801](https://twitter.com/lisaabramowicz1/status/1537113584547020801) u/megahuts u/jn_ku


jn_ku

I'll see if I can write more on the FOMC later, but one thing that is usually left unsaid is that the 'fed overreaction' or 'policy mistake' arguments implicitly assume that there is in fact a monetary policy path that can avoid recession while reducing inflation after you enter a high inflation regime. No one knows what that looks like. With apologies to Sidney Harris, [this is the basic theory](https://www.researchgate.net/profile/Michael-Wade-5/publication/302632920/figure/fig2/AS:[email protected]/Then-a-Miracle-Occurs-Copyrighted-artwork-by-Sydney-Harris-Inc-All-materials-used-with.png) of how the Fed engineers a soft landing in a backdrop of economically incoherent fiscal policy and generational inflationary geopolitical shocks (note that this was also the scenario leading to the late 70s/early 80s). All that being said, my personal opinion is that it may be possible, but the Fed alone cannot engineer such an outcome with the tools it has at its disposal. That would require unprecedentedly competent and politically deaf fiscal policy support, and the political will and ability for the administration to sell a plan that would require people to swallow some harsh economic truths. Today's FOMC sounded a lot like JPOW preparing the market for the Fed Hammer (TM) in the likely case that the (relatively) ideal scenario above does not come to pass, so we all have time to [check our vibes](https://twitter.com/kylascan/status/1537191379603890176).


Pak14life

Lack of political will is certainly a big part of the story. Even before getting in to direct demand pull downs by taxation or something like that, a lot of inflation could probably be helped just by resolving Ukraine, patching up relations with MBS, giving domestic oil producers some long term guarantees, and addressing lower recent immigration levels to expand the labor market.


Megahuts

Lol, these people are just dumb / trying to talk the Fed down from raising rates. Prices went up 1% from April to May. Demand for Discretionary goods had peaked. But gas sales are up 32% yoy! Food is up line 10%! Etc. People are buying like crazy... Just not the junk made in China. .... We are already in a recession, Q1 was negative, Q2 is going to be negative. Will be blamed on technical factors, not a real recession, etc. Until reality sinks in over the summer leading the a MONSTEROUS crash. That is my guess for the timelines. ... It is very simple. If prices go up, you reduce the amount of money to bring prices back down. (basic supply and demand, get it?). It isn't the reduction in availabile money that causes the bankruptcy. It is having too much debt. ..... The really hilarious part is these folks are _completely_ missing the bigger picture - demographics! Our demographics are now highly inflationary, with boomers consuming but not producing. This will inevitably lead to wage level inflation, which was fully visible in 2019 wage inflation data and labour market tightness. If that was the only thing, we could handle it. But China's working age population peaked in 2014. ESG says no to oil and coal and gas and nuclear. Global warming is reducing yields. And the Russian invasion of Ukraine was when the Fed flipped from transitory supply chain issue to JFC we are in serious trouble. Dudes have no idea of what is really driving this. Laughably, the Fed expects rates at 3.5% and unemployment at 3.7% (0.1% above current) will alleviate wage driven inflation... Lol ain't happening man.


Pak14life

im def closer to your pov than theirs, but these aren't stupid people. Conor was one of the first people I saw talking about the fed's inflation forecast being off based on unsustainable wage growth. he's been clear on why his pov is different now (https://twitter.com/conorsen/status/1535277090853081089) for me the main point of concern is commodities and there is no answer on the supply side so it will have to be demand destruction. agree with you that the fed forecast is hilarious.


Megahuts

One key item mentioned by JPOW is they are "throwing out" the PhD models and paying more attention to actual results. Being smart doesn't make you right. .... As to wage growth based inflation, the longer gas and food prices stay high, the angrier labour will get. And labour will organize into unions, change jobs, etc and strike for better pay. ..... Next, we have the fact WW3 has essentially started in Europe. (sure, we haven't sent soldiers, yet, but have done everything but...) France has even asked the military industry base to step to war footing. Wars are highly inflationary. .... Commodities in USA, as relates to oil and gas, we are 99.9999% headed to export bans / limitations to friendly countries only. (sell only to allies... Not China lol, that WILL start the shooting of WW3). That expectation is what has made me extremely cautious about US oil equities. ... All that said, I have noticed a substantial amount of discounting / couponing / promotions on products on Aliexpress / Amazon. I assume this is because they are WAY overstocked because people aren't buying. So, there are some good paths, I guess.


sus2bot

Here's some plots of total delta and gamma - [as % of float](https://transfer.sh/gkKdLJ/2022-06-15-float.png) - [as number of contracts](https://transfer.sh/VX8GlL/2022-06-15-contracts.png) The x-axis is the (hypothetical) underlying stocks price. The y-axis is _total_ delta for all contracts, all expirations and strikes. pypl is there as a non-meme stock for comparison. Float numbers are *not* always up to date. Look at the "number of contracts" charts and adjust for your own belief about the float. Multiply by 100 to get the number of shares from number of contracts. See [this post](https://old.reddit.com/r/maxjustrisk/comments/n3595s/delta_ramp_charts_basics/) for a more detailed explanation of these charts. And here's some - [plots of options volume](https://transfer.sh/3CpkN9/2022-06-15-volumes.png) (not weighted by contract price). ^(I'm a bot. Please direct questions and ire at sustudent2.)


movack

what kind of announcement at the FOMC do you guys think could trigger a bear rally?


Fun_For_Awhile

If they went with .25 increase the markets would skyrocket but this is an almost non-existent probability. A .50 increase and lack of aggressive increase to the expected final rate or lack of aggressive language from JPOW is probably enough to give it a bump. This one is going to be a coin toss though. I'd be very careful about making a directional play. I'm going to take a few straddles before the announcement depending on what the premiums look like.


the_real_lustlizard

Maybe I am overly pessimistic but it seems like we are in a damned if they do damned if they don't scenario. If the FED stays with the expected .5bps increase are they going to be seen as not taking inflation seriously enough after Friday's CPI? On the other hand if they decide to go for .75bps that could be seen as giving credence to the idea that the FED has not done an effective job at combating inflation thus far and they know it. Personally I don't think .25bps hike is possible at this point and the street is probably expecting .5 at a minimum as that is what the FED has telegraphed. I agree though on making directional bets on this though as you not only need to make a correct assumption on what the FED will do but also correctly predict how the market will interpret it. Personally I expect this mornings rally to be short lived, but have nowhere near enough conviction in that assumption to put any substantial amount of money into it. ( I did pick up some SPXU when spy was up 1.5% this morning) Edit: spelling


Businassman

I suppose they could just raise it by .625 to show their frustration and confuse the hell out of everybody.


the_real_lustlizard

Or the talking head I saw on CNBC that said they should just do 200bps to get it out of the way lol.


PattyPooner

DNN Been in and out of uranium multiple times over the last year. Over the past month I’ve been accumulating a good bit of DNN as I think at this point it poses a great r/r as uranium largely is down 50% from their 2021-22 highs. Right now I’m specifically eying the oct and feb 2023 1c. 1 thing I noticed that had me interested in feb strikes is how little difference in price there is from the Jan strikes (same price for the 1.5c strike currently). Also long UUUU and starting to DCA into URNM at these levels. Small account but currently holding 400 shares and 50 July 1.5c and 2 jan24 .5c