Meta Strategy Trading Portfolio – Probability Map Update.

– Positioning Update Thursday –

Volatility Collapse Incoming

Last Thursday, a washout in stocks managed to put a dent in the prevalent short-term, buy-the-dip behavior, but this pre-election period still remains one of the quietest on record overall.

Because of perceived uncertainty, this election is very well hedged, which is visible in an uncommonly elevated Vix.

Once the event has passed, volatility will compress as a major need to hedge disappears, which causes a constant tailwind for stocks due to the buybacks released by a reduction in dealer hedging.

At the same time a well-hedged event is unlikely to lead to an outright collapse in stocks.