Valor View – NG – Aug 27 – Opex Vol Crush & Straddle Collapse

Opex Review

• I think what Opex would bring was clear on Friday itself, when vol got smashed bringing the straddle down to 12 cents with a weekend and 2 business days still out there
• Whoever, did the smashing made money on that 12 cent straddle as well
• Lately, all of the moves have mostly become about V/F and I have been wondering what is happening
• My initial theory was that with BON retiring and the other market maker not having a big size, we may see some fireworks into V/F expiry
• But, what if the stress is already present. Without proper delta hedging, this -0.75/-0.85 area is the worst for market maker(s)

Settlement & OI

• And this is right where we have been settling for last two years. So, any decent risk manager at a FCM would flag these positions and force over hedging etc through margin increase

Skew & Vol

• So, all these theories about spec being short winter etc may have a simpler but deadlier explanation of V/F CSO hedging
• As V/F becomes less and less liquid, the moves will be even more volatile going into expiry
• The OI last year was much much higher, but it was much cleaner and the market makers were at bigger shops
• This is the only way I can explain V/F contracting on down moves, other than the theory that it's so bearish that people want to sell more winter premiums than the front

Key Trades

• People who had sold Q4 and Q1 winter premium are not stupid
• I see live calls being bought now, potentially covering the shorts
• Smart people cover when they get away with stupid trades, otherwise you risk becoming optionsellers.com
• Q1 6.00 calls were lifted for 16.8 cents
• Sumer'26 2.50/4.50 fences were bought for 19 and 19.3 cents lifting the calls
• People seem to be taking profits on this move down as well
• V 2.50 put got sold for 0.071
• X 3.00/2.50/2.00 put fly got hit 0.105
• Someone, even paid few tics for V 3.60/3.75 cs, bet or hedge against V/F?
• With weather and production levels what it is, a rally seems unlikely, but prudent people are at least taking profits/increasing length on Q1 and JV26
• With last EIAs bullish miss, people will be intently looking for signals if there is phantom production or not in the data

Outlook

• Profits were taken on V 2.75/2.50/2.25 put as well

• Let's hope for a better future expiry than the option expiry that we just witnessed