Meta Strategy Trading Portfolio – Probability Map Update.

Make Hay While The Sun Shines

Frequently, popular narratives about large moves in the stock market hide much more relevant mechanics of structural market flows.

A glimpse at the major demand drivers, in a positive year heading into the fourth quarter with a well-hedged election event in place, made it possible to lay out the most probable scenario several weeks ago – there was no need to predict a winner of the US presidential election.

In a double whammy Vix crashed from an unnaturally elevated level following a clear election result, which accelerated massive dealer buybacks of S&P futures as the value of hedges collapsed.

A major part of those vol-induced buybacks was realized immediately, but tailwinds from options markets, re-leveraging of vol-controlled funds, and re-investment of gains will likely persist all the way into January.