February 14, 2022
“Dealer hedging flows can flip abruptly when negative vanna collides with a spike in implied volatility. ‘A rise in implied volatility causes buying,’ says Garrett DeSimone, head of quantitative research at OptionMetrics. ‘Dealer delta decreases, inducing frenzied rallies.’
The Vix jumped from 28 at the open on January 24, to 38 at noon. ‘That would fuel a vanna rebound,’ DeSimone reckons. The Vix move implies negative vanna might have caused nearly $1 billion of buying after the spike occurred.”
Risk.net’s latest article, “Vanna and the Big Put: unusual suspects in a market mystery,” takes a deeper look into the US equity reversal on January 24 and the many theories surrounding it. Featuring insight from OptionMetrics’ Garrett DeSimone, the full article is available to read below.