I have to admit, it was Mike Santoli that germinated this post idea, with a comment that IWM/RUT2k was really just rising on meme stocks and not a true broadening out/investors looking for value. (And add a dose of dumb money hedge funds being short squeezed.) So, being a big fan of pointing out the usual IWM financial comedy…
The IWM/Broadening Out Fallacy is Back
This is a biannual event now. Hedge funds get caught shorting stuff that can go down against their herded giga tech and then feel the pain as they are forced to close their shorts. Look at today, QQQ is flat and IWM is up, so that a needle in the eye for that community.
The put flies in that post worked out very nicely. (Closed before JayHole ramp of course.) And last year when it fooled everyone as usual…
Fed/NFP/Giga Tech Earnings Vol Trades
Yesterday I wrote about the dispersion unwind and vol spike in April. Well, look at where VIX9D (the vol metric most important; it is where the vast majority of SPX options are traded in our new 0DTE regime) peaked this morning:
I have yet another IWM trade set up that looks pretty darn likely to work. But first, let me briefly dig into the meme/options/short squeeze situation, the truth under the hood that the lazy punditry on CNBC won’t bother to investigate. These folks love a lethargic narrative, like rate cuts mean they are finally good investments.
Firstly, the shorts, just too many and they are feeling the pain, just as end of month markups and large call open interest yanks IWM higher:
I mean, they are stuffed to the gills with their favorite AI names yet they needed to sell something into August-October seasonality, so I suppose hedgies are pretty apathetic group as well. On top of being resoundingly trounced in performance by the retail crowd who at this point just laughs at them while they write their own trading algos:
Now, take a gander at this chart. It is IWM the last two summers, and what you will clearly see is that Aug ends strongly, and even marks up right to the last hour of August, but when September arrives, it’s goodnite broadening: