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Gamma Or Theta?

28 June 2017 by lberuti

In the morning, investors appeared to be reappraising the outlook for global borrowing costs and monetary policy in the wake of the comments from the usually dovish Mr Draghi. Global central bankers are coalescing around the message that the cost of money is headed higher. These concerns about tighter monetary conditions were compounded by remarks by Mrs Yellen yesterday that asset valuations look high by some measures, another global cyber-attack, an IMF cut to their US growth forecast. As a precautionary measure, iTraxx Main (ITXEB) was sent 1.5bps at 56.5bps, iTraxx Crossover was sent 6bps wider at 244bps, and all risky assets felt a bit shaky. That proved too much for the ECB to handle and they felt they had to say markets had misjudged Mr Draghi speech on stimulus. It certainly produced the desired effect, and risky assets went in reverse across the board. So, for the first time in a while, volatility has reared its head again, with investors able to capture a 4bps total variation on ITXEB today. The potential for tape-bombs to rock the market is now clear to everyone. That leaves options players conflicted between owning cheap gamma and having positive theta for the US holiday week-end coming up.