Fun fact: Danish mortgages have a two way option. You can refinance as you do here in the US and you can buy back bonds in the series your mortgage is included in to deliver to the issuer, monetizing the trapped embedded equity you talk about. Although it would be one way to help unfreeze our housing market, I doubt it’s coming to your neighborhood any time soon.
I bought GLD dec24 220 puts a week or two ago because 1) IV was ~16 with realized tracking around 20 2) flat put skew (I think gold can crash down just like it crashes up) versus steep call skew, and 3) evidence of very week flows into gold as it nears a high risk technical level. Curious where I was off on the vol side of it since you laid out how rich GLD vol is here.
I just looked...elevated vol but VRP was close to 0 and one of the lower VRPs of all assets we track. So the gamma looked like a relative buy. 16 vol looks like on the low end of the August range of 15.5-17.5 roughly but had only reached 16 once before that in the past 6 months.
In early Aug the 2-week rolling RV got up to 19.5.
That trade feels ambiguous to me.
Cheap relative gamma, but kinda expensive vega. Would have been in my too hard pile...that's why having a directional bias and story can help tilt the decision. Really hard to trade vol just based on the vol metrics themselves since they usually do a decent job of pricing.
It will be interesting to revisit this after Jackson Hole. My guess is that the markets are expecting a dovish outcome hence the call skew and high VRP in GLD and relatively cheap vol in TLT. I think there is a heavy directional force causing this and if JPOW doesn’t deliver it could reverse.
Thanks and agree, I was hedging with a directional bias but wouldn’t do it blindly if the vol market told me something different. I was most surprised to see your analysis that said GLD vol was rich overall but given the upside flows and call skew and politics it makes sense. The flows into gold look very shaky and the fact that call skew is bid is another indicator imho of weak buyers. The flat put skew made sense to me and I’m glad my cursory glance at VRP wasn’t off too far
Fun fact: Danish mortgages have a two way option. You can refinance as you do here in the US and you can buy back bonds in the series your mortgage is included in to deliver to the issuer, monetizing the trapped embedded equity you talk about. Although it would be one way to help unfreeze our housing market, I doubt it’s coming to your neighborhood any time soon.
I bought GLD dec24 220 puts a week or two ago because 1) IV was ~16 with realized tracking around 20 2) flat put skew (I think gold can crash down just like it crashes up) versus steep call skew, and 3) evidence of very week flows into gold as it nears a high risk technical level. Curious where I was off on the vol side of it since you laid out how rich GLD vol is here.
I just looked...elevated vol but VRP was close to 0 and one of the lower VRPs of all assets we track. So the gamma looked like a relative buy. 16 vol looks like on the low end of the August range of 15.5-17.5 roughly but had only reached 16 once before that in the past 6 months.
In early Aug the 2-week rolling RV got up to 19.5.
That trade feels ambiguous to me.
Cheap relative gamma, but kinda expensive vega. Would have been in my too hard pile...that's why having a directional bias and story can help tilt the decision. Really hard to trade vol just based on the vol metrics themselves since they usually do a decent job of pricing.
It will be interesting to revisit this after Jackson Hole. My guess is that the markets are expecting a dovish outcome hence the call skew and high VRP in GLD and relatively cheap vol in TLT. I think there is a heavy directional force causing this and if JPOW doesn’t deliver it could reverse.
Thanks and agree, I was hedging with a directional bias but wouldn’t do it blindly if the vol market told me something different. I was most surprised to see your analysis that said GLD vol was rich overall but given the upside flows and call skew and politics it makes sense. The flows into gold look very shaky and the fact that call skew is bid is another indicator imho of weak buyers. The flat put skew made sense to me and I’m glad my cursory glance at VRP wasn’t off too far
I actually sent out my reasoning in real time
https://substack.com/profile/105458573-joshua-myers-cfa/note/c-65255071?r=1qscct&utm_medium=ios&utm_source=notes-share-action
I tend to look at 20-day rolling realized as the best indicator for delivered vol, I recognize this is not SOP
And I have no justification for that! I think I picked it up from breaking the market