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.
And then the media blathers on about the rally broadening out. It’s rote refuse at this point, but it does offer some nice opportunities.
First, here they are, record shorting in the stuff that is allowed to fall:
Just as they lowered their gross leverage by adding these shorts:
Yet are as long as they can be in the giga tech stuff:
Thus, performance carnage this week. And they’ve been grabby of IWM calls at $230, which, by the way, had a giant open interest of dry kindling just sitting there waiting for the cigarette butt out the window to light up the dealer dynamic buying to hedge:
We saw this exact same thing during July 2024 opex week. Comical spikes/squeezes in IWM/RUT with QQQ underperforming:
First a fade into opex and then once the end of month gamma rolled off, it was goodnight IWM Irene. So here we are again:
And how did hedge funds do that month?
So, a few cheap long vol trades in IWM to capture the end of another trip down fallacy lane.