On Eurostoxx 50 Bassman likes:

Buy December 2024 expiry SX5E call option, Strike = 3700 (~at-the-money)

Sell December 2024 expiry SX5E put option, Strike = 2700 (27% out-the-money)

Costless

On gold he writes he is not a gold bug; Gold is not a trade; it is a twenty-year horizon asset diversification to hedge

against a blimp-sized black swan landing in your backyard. A 5% allocation is

likely dead money for quite a while, but I sleep well at night.

For more trade ideas click the link,

https://www.convexitymaven.com/images/Co

Q4 2007: PetroChina IPO with market cap >$1 trillion, after a multi-year bull market. Equities also obviously peaked that same time.

Q42019: Aramco IPO with market cap >$1 trillion, after multi-year bull market.

Both oil stocks and totalitarian states also adds small in the juxtaposition analysis

Credit protection was not participating in the last squeeze we saw before this little sell off. We pointed out the short Eurostoxx 50 versus iTraxx trade being put on by "smart" prop books over past weeks. The trade has worked very well. Note how Eurostoxx 50 fell more relative to the iTraxx main (which has recovered the entire move lower).

iTraxx main is inverted in the chart.

Speculative index number one, ChiNext, +1.8%, putting in one of the biggest candles higher in a long time. Chinese margin debt trading (biggest driver of equities) holding just fine.

Bull markets often end with a euphoric rally called a ‘blow-off top.’ We may have just had one

The Dow was up 10.5% over the course of just 74 trading days from mid-August to late November

S&P 500 Index performance after Dec 1988, Jun 1998, Dec 2005, and Aug 2019 initial 2s/10s curve inversion

Up until last Friday GS estimates dealers were long 7-9 bn USD gamma. The effect was the "pinned" sensation we witnessed in Europe.

For every 1% move in the SX5E dealer gamma needed to hedge (buy or sell) approximately 20k Eurostoxx 50 futures which is huge (40% of daily average volume).

This gamma has now been "freed"...

1. Long term (5 year EPS) expectations for the market have been cut sharply setting a low bar for future equity market performance.

2. In March 2018, analysts were expecting 12.1% pa growth in EPS for the next five years. This is now 7.9% pa.

3. Cuts of this magnitude have only occurred three times before: after the TMT bubble (a cut from 14% to 11%); after Lehman (11% to 6%) and during the Eurozone crisis (13% to 9%).

4. periods of low expectations tend to be followed by high returns.

5. At the sector level the most extreme view is for global mining where LT forecasts have been slashed to 0%, so in real terms to shrink over the next 5 years!

Every bigger move down in S&P has been preceded by HSI moving lower. S&P has come off, but HSI is back to making new recent lows...

While on the CTA carnage topic, below is the latest monthly report of the fund we track. VaR per asset; grey equities (big exposure), black total, bluew rates, green commodities, red FX.

The way the CTA behaves, we can probably assume this is a good VaR proxy for the general CTA space..

VVIX was the leader, once again....

...frequent readers of TME know this guy still has a 100% track record, the inverted way. Before getting too excited, remember;

"do not confuse pace with direction".

Needs little commenting, but demand for short term protection has surged.

S&P versus CDX IG (inverted). We usually show the European "trade" as our hit ratio historically is better in Europe than in the US.

VIX 2 vs 8 months futures spread.

If we are to follow the perfect 2013 pattern, the bounce should start kicking in soon, but maybe this time is different...

While equity volatility, V2X, was falling during November, iTraxx main was holding, indicating not all was as awesome as equity land was discounting. We can clearly see how this "gap" was closed yesterday as V2X blew out.

European credit protection, iTraxx main, has been lagging the equity exuberance for weeks. The "dislocation" came in big yesterday. As we have written, "smart" prop desks have been putting on this trade, short equities, short itraxx main. The average Joe can not put these trades on as the credit leg is OTC only, but watch this relationship going forward. For now the "smart" guys are nicely in the money, let's see what happens from here...

Fed's balance sheet at $4.05 trillion, highest level since Jan 9, up $293 billion over the last 3 months.

"This is not QE." - Jerome Powell