Yesterday the market had a quick and fast drop in the ES futures, but you be reversed partly due to triple witching options expiration week. Tom Preston provides a great explanation of why the down move was so swift. The explanation came from the 6/17/2016 tasty trade Cherry bomb.
The drops have tended to be bigger and faster than the rallies recently, and that’s partly to do with short gamma hedging. Gamma hedging is what firms (who are short options) do to keep their portfolio delta within certain parameters. They sell more and more futures when /ES starts to drop. Gamma “manufactures” delta. And when you’re short gamma via short puts, you manufacture long deltas as the market drops. So, you need to sell more /ES when the market falls because your negative gamma is creating positive deltas. The opposite is true with short calls. But with open interest heavily weighted toward puts in SPX, the short gamma exposure on the put side is helping accelerate the drops in /ES.
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