Complacency is extreme. With the put-call ratio near record lows.
One measure of risk in the options market is flashing the reddest of red lights possible, as dealer’s gamma exposure reaches a record high.
“Dealers are short calls due to the unprecedented call activity previously mentioned, and as a result have been forced to chase stocks higher to hedge,” Chris Murphy, Susquehanna’s co-head of derivatives strategy, wrote in a note to clients.
“The unwind could potentially be violent given all the excess euphoria. It is more likely a question of when and not if.”
Small Caps managed gains on the week…But, the gamma unwind is evident as stocks tumbled to push the market to its worst week since Halloween.
Which is quite a pathetic fact given the NYSE Composite was only down 0.5%.
Stocks saw a massive short-squeeze on Thursday dominate the week as the ongoing overall squeeze since Halloween remains in place… (the most-shorted stocks have squeezed higher for 9 of the first 11 days of the year).