“Because of the higher volatility, a lot of these institutional investors were basically forced to rebalance their portfolios -- they’re ruled-base and they have to trade,” said Peng Cheng, a global quantitative and derivatives strategist at JPMorgan. “Whereas for retail investors, if they want to step in and buy the dip, they can. If they don’t want to, they don’t have to trade.” 作者: sec2100 時間: 2022-2-5 22:17
The January carnage began with a massive selloff among expensive technology shares, an area hedge funds had piled into that now face mounting valuation pressure with rates rising. The fast money quickly cut positions, a process that likely exacerbated the rout. Net leverage among long-short hedge funds fell to an 18-month low by Jan. 27, data compiled by Morgan Stanley’s prime broker show.作者: sec2100 時間: 2022-2-6 08:45
Meanwhile, balanced funds and pensions were expected to start month-end rebalancing in order to return to a preset bond/stock allocation. Given the equity selloff, they’d need to purchase stocks this time. Such buying amounted to a 5% market upside, according to a JPMorgan estimate.
Perhaps not coincidentally, stocks bounced back to finish January on a strong note. The S&P 500 went on to produce the biggest four-day rally since November 2020, before Meta Platforms Inc.’s disappointing results halted the advance.
One group that helped amplify moves, in both directions: options hedgers.
As investors rushed to the options market amid market turmoil, dealers providing such contracts either bought or sold stocks en masse in a bid to neutralize their fast-moving exposures -- a dynamic known as “gamma hedging.” And this time, the condition was such that they needed to buy in a rising market and sell when stocks went down.
The hedging action was “contributing to the violent and ‘chase-y’ moves both higher and lower,” Charlie McElligott, a cross-asset strategist at Nomura Securities, wrote in a note this week.