Posted by: jhamon | January 6, 2010

MysteryHedgie: “The Waiting Game”

The Waiting Game….while most investors and traders are focused on Friday’s Employment report, our order flow has been heavily skewed toward option selling, often below the bid, both yesterday and today.

Normally this degree of one-sided activity has presaged at least a modest turning point in VIX and in stocks, as holders of protection capitulate based upon adverse  P&L.  Different is that this is taking place immediately as the New Year begins, with positions light. 

Explanations range from the tightening of credit spreads (see 10 year treasury/ Junk bond spread graph, below) to an absence of buyers due to weather in London.  In any event, it increases the importance of asset price reaction to the Friday NFP report for setting the tone in January, as “real money” allocations begin to deploy….       

Credit Spreads Tighten

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