GammaLab

The effect of VIX on dealer positioning

TVC:VIX   Volatility S&P 500 Index
Volatility comes down more significantly today and puts therefore become less valuable (their chances of expiring in the money decrease with lower vol). As option dealers are net-short puts (they are sellers of put protection), they now need to unwind hedge positions and buy back SPX futures to get market neutral again. This dynamic is pushing markets higher today.

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