SVB bankruptcy. What's up in the week ahead?
With the news of SVB bankruptcy and being taken over by the FDIC, chatter of a potential financial crisis has since sparked up on the internet. Google trends clearly show that US searches for “Financial crisis” more than quadrupled going into Friday. With the commoditisation of derivatives - the panic will push people into hedging and speculation on a downside move and consequently, implications in terms of reflexivity.
What does this mean for the markets? Well, according to ZackFinds.io, at the beginning of the trading day on Friday, SP500 gamma positioning was in the percentile 100. Bottom line: there is too much hedging in the market with a relatively high IV when compared to the beginning of the week.
So, what caused the sell-off Thursday and Friday? Was it just systemic risk related to the bankruptcy of SVB? Or negative flows pushed the market down? Or should we consider the reflexivity of a very big increase in IV on top of an expiration?
Currently ATM 30-day IV percentile is sitting at 52%, which is a significant jump since the beginning of the week. The SVB event triggered this IV increase and pressured the market at the end of the week through significantly negative Vanna Flows related to an inflation of put deltas associated with an increase in IV - creating this leptokurtic scenario.
However, going into OpEx, these flows should be extremely supportive with Charm and Vanna flows pushing/supporting the market. If the market manages to selloff this week there might be something bigger lurking under the water and it should be a good indication of direction post-OpEx.