Mon 29 June 2026 in lieu of thread… a few loose thoughts.
--- OPTIONS POSITIONING ---
Thanks to options expiry of Friday, there was a huge swing in dealer gamma to the third most negative value on record. A reminder for those not deeply versed in options that when gamma is negative, options dealers become price chasers, buying rallies and selling declines to maintain a hedged position and increasing the potential for greater volatility in both directions.
--- EQUITY FUNDING ---
We have discussed this since early this month, and now the issue is growing more visible as the problem grows acute. With quarter end tomorrow, dealer balance sheets are behaving as if we are in an extreme year-end tightness (year end tends to see dealer balance sheet tightness due to capital constraints). I expect this to relax somewhat after June 30th just as it did after late May, but the issue will continue as long as the demand for leverage persists (levered ETFs, futures, margining meets supply of paper from IPOs/ADR listings that needs to be carried). Interestingly, the Bloomberg tickers don't tell the full story — the S&P AIR TRF active future (AXW1, a proxy for dealer leverage) rolled from June to September and currently sits around 120 (still very high), while the July contract is screaming toward 180+!
Between dealer options positioning and funding tightness, I have to say it really is rare to see a setup so full of risk like this one. I believe there will be a reckoning in the near term, particularly around leveraged ETFs related to semiconductors (this brief conversation with Dean Curnutt of Alpha Exchange was excellent), and I don't think we make it out of July without a serious issue, particularly with liquidity drying up as traders go on vacation. Maybe the can may be kicked into August (crises love a good August), but I really don't see how we get to Labor Day without a serious drawdown in equities — calls for Rotation notwithstanding. The vulnerabilities in market topology are simply too extreme (and yes they can always get more extreme I suppose).
--- OIL ---
I'll have more to say on this in a dedicated note later, but when everyone from Chanos to Javier Blas are openly joking on Twitter about how Middle East wars are only permitted on weekends, you know that everyone has Public Knowledge and gets the joke. Which makes you wonder: why the desperation to keep kinetic action to the weekend? And why is Iran playing along?
That's it for now… stay frosty…
Kind regards, Paulo aka Cloudbear