Decoding Macro Trends

Check out this great podcast from Bloomberg Odd Lots and Kris Sidial on the growing popularity of options trading!

Kris Sidial notes that along with overall option volume growing, the market maker ecosystem has become more concentrated, increasing the risk of positioning pressure should there be an event that kicks volatility into high gear. A great refresher on gamma positioning and how changes in sentiment from end-users and their directional expressions can lead to a reinforcing feedback loop in markets.

Without commenting on the relative value of stock market volatility, our view at Viewpoint Investment Partners is that it’s a curious macroeconomic backdrop (geopolitical tensions, wars, monetary policy uncertainty, U.S. election year, etc.) for stock market volatility to be grinding away at some of the lowest levels we’ve seen since before the pandemic shock. The underlying narrative that Kris mentions is that there is dogmatic appetite to sell volatility on any spike. Perhaps these participants are looking for alternative income streams with different path dependencies than just being long stocks. However, given we’re no longer in an era where monetary policy is super accommodative and participants shouldn’t be as yield starved as they have been in the past, I would expect the shock required to shake equity volatility out of its slumber may be less material than otherwise expected.

Happy investing,

Scott Smith, Chief Investment Officer