1/x) As $SPX powers through 4K to new ATHs and $VIX cracks below 20, all is well and nature is healing. Yet the irrational ebullience masks over the unresolved and proliferating fragilities lurking underneath the surface that pose a systemic threat to the market structure.
2/x) I& #39;ve already discussed deteriorating equity market liquidity extensively, but in our overleveraged market the significance and implications of this sinister vulnerability can& #39;t be understated. Liquidity –– most importantly market depth, has been vanishing since Volmageddon.
3/x) Volatility & liquidity are reflexively intertwined as I& #39;ve previously noted. Moreover, this also ties in with gamma exposure. You can clearly see here how a decline in vol supply following Volmageddon moves in sync with option volumes & market depth

https://twitter.com/FadingRallies/status/1365030209276284930?s=20">https://twitter.com/FadingRal...
4/x) Hence, the complete shift in market structure with diminished liquidity altered how the delta1 flows from hedging gamma impacted price action. Vanishing depth enabled hedging flows to dictate a low-liquidity melt-up environment. This creates the facade of a bullish market
4/x) Hence, the complete shift in market structure with diminished liquidity altered how the delta1 flows from hedging gamma impacted price action. Vanishing depth enabled hedging flows to dictate a low-liquidity melt-up environment. This creates the facade of a bullish market
4/x) Hence, the complete shift in market structure with diminished liquidity altered how the delta1 flows from hedging gamma impacted price action. Vanishing depth enabled hedging flows to dictate a low-liquidity melt-up environment. This creates the facade of a bullish market
5/x) But in reality, the order book increasingly exhibits a type of convexity, where market depth completely vanishes relative to level in a nonlinear fashion beyond the top of the book. Thus when a side of the book is hammered, prices are impacted asymmetrically by size.
5/x) But in reality, the order book increasingly exhibits a type of convexity, where market depth completely vanishes relative to level in a nonlinear fashion beyond the top of the book. Thus when a side of the book is hammered, prices are impacted asymmetrically by size.
5/x) But in reality, the order book increasingly exhibits a type of convexity, where market depth completely vanishes relative to level in a nonlinear fashion beyond the top of the book. Thus when a side of the book is hammered, prices are impacted asymmetrically by size.
5/x) But in reality, the order book increasingly exhibits a type of convexity, where market depth completely vanishes relative to level in a nonlinear fashion beyond the top of the book. Thus when a side of the book is hammered, prices are impacted asymmetrically by size.
5/x) But in reality, the order book increasingly exhibits a type of convexity, where market depth completely vanishes relative to level in a nonlinear fashion beyond the top of the book. Thus when a side of the book is hammered, prices are impacted asymmetrically by size.
6/x) As mentioned, when offers are lifted it leads to that low liquidity melt-up. However, the true fragility is on the downside. The convexity of the orderbook creates a situation that beyond certain sizes, there is absolutely no bid without moving prices significantly.
6/x) As mentioned, when offers are lifted it leads to that low liquidity melt-up. However, the true fragility is on the downside. The convexity of the orderbook creates a situation that beyond certain sizes, there is absolutely no bid without moving prices significantly.
6/x) As mentioned, when offers are lifted it leads to that low liquidity melt-up. However, the true fragility is on the downside. The convexity of the orderbook creates a situation that beyond certain sizes, there is absolutely no bid without moving prices significantly.
7/x) The issue extends beyond an instance of size wanting to get out –– that ultimately won& #39;t be too difficult. The vulnerability here is that this is systemic. Positioning broadly is at extremes with excessive leverage that is incredibly concentrated in highly correlated assets.
7/x) The issue extends beyond an instance of size wanting to get out –– that ultimately won& #39;t be too difficult. The vulnerability here is that this is systemic. Positioning broadly is at extremes with excessive leverage that is incredibly concentrated in highly correlated assets.
7/x) The issue extends beyond an instance of size wanting to get out –– that ultimately won& #39;t be too difficult. The vulnerability here is that this is systemic. Positioning broadly is at extremes with excessive leverage that is incredibly concentrated in highly correlated assets.
7/x) The issue extends beyond an instance of size wanting to get out –– that ultimately won& #39;t be too difficult. The vulnerability here is that this is systemic. Positioning broadly is at extremes with excessive leverage that is incredibly concentrated in highly correlated assets.
7/x) The issue extends beyond an instance of size wanting to get out –– that ultimately won& #39;t be too difficult. The vulnerability here is that this is systemic. Positioning broadly is at extremes with excessive leverage that is incredibly concentrated in highly correlated assets.
8/x) And no, this isn& #39;t solely about $ARKK. The ARK complex is undoubtedly reflexively fragile due to liquidity, correlation, concentration vulnerabilities... Yet it is merely a microcosm of the underlying chronic disorders in the broader market.
8/x) And no, this isn& #39;t solely about $ARKK. The ARK complex is undoubtedly reflexively fragile due to liquidity, correlation, concentration vulnerabilities... Yet it is merely a microcosm of the underlying chronic disorders in the broader market.
8/x) And no, this isn& #39;t solely about $ARKK. The ARK complex is undoubtedly reflexively fragile due to liquidity, correlation, concentration vulnerabilities... Yet it is merely a microcosm of the underlying chronic disorders in the broader market.
8/x) And no, this isn& #39;t solely about $ARKK. The ARK complex is undoubtedly reflexively fragile due to liquidity, correlation, concentration vulnerabilities... Yet it is merely a microcosm of the underlying chronic disorders in the broader market.
9/x) Forced selling is the only thing that causes markets to crash. Given the extent of leverage that& #39;s concentrated in highly correlated assets, forced liquidations can cascade into a reflexive avalanche of liquidation feedback loops into a market that has no depth – no bids.
9/x) Forced selling is the only thing that causes markets to crash. Given the extent of leverage that& #39;s concentrated in highly correlated assets, forced liquidations can cascade into a reflexive avalanche of liquidation feedback loops into a market that has no depth – no bids.
9/x) Forced selling is the only thing that causes markets to crash. Given the extent of leverage that& #39;s concentrated in highly correlated assets, forced liquidations can cascade into a reflexive avalanche of liquidation feedback loops into a market that has no depth – no bids.
9/x) Forced selling is the only thing that causes markets to crash. Given the extent of leverage that& #39;s concentrated in highly correlated assets, forced liquidations can cascade into a reflexive avalanche of liquidation feedback loops into a market that has no depth – no bids.
10/x) We all observed Archegos wipeout due to overextended concentrated leverage. The significance here is in what implies for positioning across the street; this won& #39;t be an isolated situation. Even a fraction of this level of deleveraging across the street would be devastating.
11/11 The point here is not to fearmonger. Positioning across markets turns increasingly short convexity & correlation implicitly, while volatility & fragility expands. The reflexivity embedded within market stress is unprecedented – capable of synthesizing malicious deleveraging
You can follow @FadingRallies.
Tip: mention @twtextapp on a Twitter thread with the keyword “unroll” to get a link to it.

Latest Threads Unrolled:
There are a lot of misconceptions about the Turkish diaspora in Germany. Since i just finished writing an essay about this topic I thought it's time to give other people
Read more
Las mejores calculadoras online en 2020A thread http://totumat.com/2020/11/26/las-mejores-calculadoras-online-en-2020/ Cuando se estudian asignaturas que requieren de cálculos complicados, nada mejor que contar con una buena calculadora.
Read more
Mitigating #ClimateChange is as much about taking up new techs as about leaving others behindMost studies focus on #coal's global downfall but another #energy tech decline is loomingRead my new
Read more