The ’Sure Bet’ That Led to a 2 Billion Dollar Disaster
When people lose money, it’s almost exclusively because of their gamma exposure.
And when a Gamma Bomb explodes, it can blow up entire fortunes.
You can think of it as the ultimate Black Swan…
An extremely rare market event where a convergence of several specific triggers — in a very specific order — lights the fuse of a ticking time bomb that can explode in a single day.
This kind of intense Gamma Bomb doesn’t happen that often… normally once or twice every decade.
The last Gamma Bomb detonated in 2018 and blew up a $2 billion security in a single day… (Just try searching “XIV” on any exchange. You won’t find it because it literally doesn’t exist anymore.)
One unfortunate trader caught in the blast was quoted saying, “I’ve lost $4 million, three years’ worth of work, and other people’s money.”
Before the explosion, most traders didn’t know the bomb even existed. In fact, short volatility — the strategy that erased so much capital — was widely considered a “sure bet.”
The CBOE Volatility Index (or “VIX”) is one of the most widely used financial gauges in the world. It measures expected volatility in the S&P 500 over the next 30 days. In general, a VIX below 20 is considered low, and a VIX above 30 is considered high.
Back around 2016, volatility had pretty much evaporated, with VIX below 16 most days of the year. In 2017, VIX closed above 16 just once… at 16.04. It averaged just 11.1 for the year. The “short vol” trade — or shorting volatility — continued to be a winner as long as volatility stayed low.
Money managers and hedge funds and quant desks were gushing over their amazing returns… 200% gains in 2017 alone…
Just look at this chart!
And you know what happened next? More and more people started making the same trade. Retail traders started piling into short volatility securities like SVXY and XIV.
Short volatility became one of the most crowded trades. It couldn’t miss, making it seem better and better and better… while actually getting riskier and riskier and riskier.
More people piling into the trade only compressed the trade more. And then on February 5, the Gamma Bomb exploded.
$2 billion was wiped from the slate.
Today, we’re seeing the pressure building for another Gamma Bomb.
Volatility compression is back on the scene. VIX could go all the way down to 12… and it could get there in the next eight weeks.
But this time it’s different because I’m expecting this Gamma Bomb to be 200 times bigger than the last one.
Instead of blowing up a tiny $2 billion ETF…
The coming Gamma Bomb could detonate at the heart of one of the most widely traded tickers in the entire market…
Triggering the worst single-day flash-crash since Black Monday back in 1987.
You need to be prepared.
If you haven’t already, sign up for my Gamma Bomb Event this Wednesday, May 24th at 8:00 PM (ET).
Andrew Giovinazzi — my mentor and trading partner — and I have prepared a survival kit for you complete with:
How the Gamma Bomb is forming — and its three distinct phases…
What this means for your portfolio right now…
And how you can leverage the Gamma Bomb for profit as early as this summer…
I’ll see you there,
May 23 2023
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