Tail risk

As the weather gets colder, are markets heating up? The SPX looks like it is preparing to muster a reasonable test of support. Maybe it's just election jitters, maye it isn't. Either way, vol is still cheap but looks like it is set to bounce. The TWD has gone bid and vols have been paid as Taiwan dollar funded carry trades are closed. Meanwhile, bond vol has risen sharply this week, benefitting the Treasury/Bund vol spread.

If the risk case turns out to be the base case and the US lurches into recession, there should be significant moves in asset markets and rises in volatility. Macro Man buys 500 December 5900 puts on the DAX this morning @ 24.5 and 100 53.0 puts on June Brent @ $0.94. More details later.
Next Post »