Once More Unto the Marketpocalypse Breach!

by dlkdev

I legit thought we weren’t going to fall into the same trap as last time, and we’d start dumping earlier than last time. But we are. God damn this market is so retarded even the Fed got caught off guard:

Fed Unexpectedly Deviates From POMO Schedule, Buys Only 70% Of Scheduled Treasurys

That’s Jerome screaming “What is going on, why are these retards still buying???”. Meanwhile, overnight repo draws are spiking again, ie liquidity pressure:

fred.stlouisfed.org/series/RPONTTLD

So, here’s what’s happening:

Liquidity on the Nasdaq-100 futures is absolutely gone. Here’s a picture of the Level II book from yesterday:

View post on imgur.com

For comparison, here’s the /ES book at the same time:

View post on imgur.com

Now, it’s normal for /ES to be more liquid than /NQ, but that’s a huge gap. Liquidity on /NQ is non-existent.

Why is this happening?

Market isn’t willing or able to short or sell /NQ futures anymore. There isn’t a single reason for that, it’s a multitude of factors such as: shorts that shorted the March lows got blown up, others are broke, big boys can’t hedge shorting /NQ very well anymore, some drank the kool-aid and went full “stonks only go up” again, etc.

What does this mean?

  1. Market is stretched extremely thin
  2. It’s the reason SPX and DJI have been outperforming NDX recently.
  3. Leveraged funds like TQQQ are completely screwing up the market again.

How?

You see those stupidly large gaps at 3:50pm for the past several days? That’s TQQQ and all the other dogshit leveraged funds.

“you’re retarded, TQQQ is too small to move the market like that” – /u/random_wsb_autist

Bitch, sit down.

As of 06/03, the open interest on /NQM20 futures (Nasdaq June futures) is 208,571 contracts.

Out of that, lev funds hold outright 3670 contracts. But they also hold a ton more notional in swaps. And you know what happens when the funds buy swap contracts from the big banks? The banks in turn go out and hedge all or most of the position by buying or selling futures. SQQQ, QID and PSQ in turn hold short positions. Estimating an approximate net positioning across all these funds looks like this:

Date Futures contracts held Total futures equivalent 1-day change
06/03 +3670 +66534 +605
06/02 +4335 +65929 +1388
06/01 +3755 +64540

So, out of 208,571 OI on /NQM20, these lev. funds alone keep long 66,534. Almost 32% of the OI is in these garbage ass funds. On 6/2 at 3:50, these things bought about 1.4k contracts, hence the retarded spike. Yesterday, at 3:50pm, they bought about 600 contracts, hence the retarded spike. But right after, UVXY, TVIX and the rest of the long vol funds came in and bought a ton of VIX futures, which dunked everything back down.

UVXY:

Holding Contracts 6/2 Exposure 6/2 Contracts 6/3 Exposure 6/3
CBOE VIX FUTURE Jul20 12776 383599400 16509 479999175
CBOE VIX FUTURE Jun20 14196 400682100 14855 401085000
IPATH SERIES-B S&P 500 VIX SHT-TERM FUT SWAP – GS 1542183.61 49931725.84 1542183.606 48050940.41
Cash 555951374.59 618918110.14

You’ll notice 2 things:

  • A ton of cash coming in long vol
  • Futures weight shifting from June futures towards July futures. And this, is very important.

It’s important due to its effects on the VIX. As VIX futures get bought, the short side will be hedging them via short SPX exposure. The VIX is calculated from SPX options with more than 23 days and less than 37 days to expiration. See:

www.cboe.com/micro/vix/vixwhite.pdf

That means June VIX futures are hedged via SPX June short positioning, which is also reflected in the options. But starting with 5/27, those 6/19 positions that hedge VIX Jun futures slip out of the calculation for the VIX itself, hence vol started shredding at that point just for this stupid-ass reason.

So now, money is finally pouring back into long volatility AND VIX etfs started rolling to the July futures. This means that July SPX will be hammered down, and those expirations ARE included in the VIX calculation, which is going to move the VIX higher and the market lower.

And guess what, we’re also in a short squeeze on volatility. TVIX & UVXY short fees are over 5%, and almost no shortable shares available anymore.

On top of that, all these garbage-ass long leveraged etfs have to start rolling those June /NQ futures soon, and they’re not going to be able to roll those huge amounts in this dogshit liquidity => TQQQpocalypse again. Short interest on TQQQ is going up big as well.

See expiration and roll dates:

www.cmegroup.com/trading/equity-index/rolldates.html

So, what you want to do is this:

  • Dump every-god-damn-long except long volatility
  • Long VIX 7/7 & 7/21 calls @ 60 strike
  • Long TQQQ way OTM puts for every god damn expiration from 6/12 to 7/21.
  • If ya played the akimbo, close the put spreads, should be a 2-3x right now, ride the other positions for free.
  • For the love of god, if you don’t want to go short, at least move to cash. You can move back in after the 1st week of July, if market’s still intact. But screw me who am I kidding you guys are greedy assholes, see you in a couple of weeks when you’ll be shitposting about “cLoSing thE mArkEtS” again.

And if you want to be cocky ass retards, how about you inverse this and post some screenshots. I double-dare you.

PS: If you’re holding ZM puts (exp. next week or later, this week’s probably screwed) you want to keep those. You retards think that was bullish action yesterday on ZM? It was shorted so hard on open that it went straight into a short squeeze, just on IBKR over 300k shares were shorted in the first minutes all the way to no shortable shares available. That was a market hate like I’ve never seen before.

TLDR: Short everything-except-the-vix-and-especially-tqqq.

 

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.