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3700 is the big long gamma level. As we have written over past sessions, sticky long gamma and very small realized volatility is creating a frustration among dealers experiencing the theta bleed. Vols are down, but realized vols are down even more.
Sudden moves like the late session Pfizer move yesterday was met with buying as long gamma must be hedged. Same works should we spike higher, especially into the 3700 area, long gamma dealers need to sell deltas.
With few strong narratives and sticky gamma, theta frustration continues for longer...
Credit impulse driving most things, properties included...but note the 3 red lines having changed that relationship somewhat recently.
Nordea reminds us of:
"i) Liability-to-asset ratio (excluding advance receipts) of less than 70% ii) Net gearing ratio of less than 100% iii) Cash-to-short-term debt ratio of more than 1x If all three red lines are breached, a Real Estate developer is NOT allowed to grow the debt base at all (Evergrande has been stuck in this situation for a while)."
Numera simulates a 20% correction on property prices and reaches the conclusion:
"Our simulations reveal a 20% correction would lower global manufacturing and producer prices by around 2% one-year after the shock."
Guess we have to be China property experts for longer...