by Doug Noland
Credit Bubble Bulletin
It was a fascinating set up. A pivotal FOMC meeting two days ahead of quarterly “quadruple witch” expiration of options and other derivatives. Option expiration-related volatility used to be largely confined to the equities market. But with ETFs taking the financial speculation world – certainly including the derivatives universe – by storm, volatility around option expirations now reverberates across markets – equities as well as Treasuries, fixed-income, commodities, currencies and EM.
Moreover, there were only a couple weeks until quarter-end for a Q2 that had been nicely rewarding for various reflation trades, including commodities and cyclical stocks (i.e. materials, industrials, precious metals). Toss into the mix that there had been a bout of risk hedging in May, followed by an unwind of hedges and the reemergence of short squeeze dynamics. There were scores of stocks and instruments up on air, vulnerable to sharp reversals.