Seagulls Soar into Quarter End

How rebalance timing impacts buffer strategies

Created with Midjourney

Setting the Table:

• Heading into the final trading day of the quarter, the S&P 500 looks to be recovering from the worst of its losses. Still down over 3% in the last three months, we’re above Wednesday’s lows but still far from early September highs. Yesterday in my blog “Red Light Cycles”, I talked a little bit about why this particular month felt like a roller coaster, even though it was exactly the amount of variance expected. 

• Liquidity across the options markets has been decent if not exceptional. We’re hovering right around the yearly average. Volumes have been lagging the past few days. You know it’s a macro focused market when SPY has its highest volume day of the quarter yet the overall market trades below average (41M vs. 44M).

  

• CBOE launched a very interesting dispersion index yesterday called “DSPX”, which tracks the relative variance between individual components and the S&P 500. This calculation has long been the domain of prop traders who attempt to arbitrage single stock variance against index variance. 

  • By creating a basket of (typically) short components and long index volatility, there is often an edge. A deeper primer on Moontower is a great read.

  • What the index hopes to do is support futures and eventually ETFs that allow people to trade this overall level, and in theory push the market towards greater efficiency.