Viking Analytics

Why I do what i do

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Markets and Casinos

In some ways, Wall Street is like a casino. Both have shiny lights, bells and whistles, with distractions galore and a myriad of different bets for the making. Wall Street and Vegas both profit from volatility, liquidity, distractions, and volume. Unfortunately for you, Wall Street and Vegas have the odds in their favor, and they don’t really care if you win or lose.  The bottom line is that both Wall Street and Vegas will turn big profits as long as enough people play their games.


The casino analogy doesn’t “walk on all fours.” For one, not all investors and traders are gamblers. Great investors are more like “entrepreneurs” than “gamblers,” in that they take measured risk within a disciplined system. In the long run, most gamblers lose money. In the long-run, most disciplined investors make money.  


In my daily newsletter, I report over-bought and over-sold signals based upon key signals of financial risk. My goal for the newsletter is simple: to help subscribers achieve their financial goals. Zig Ziglar says, “you can have everything in life you want if you just help enough other people get what they want.” 

Side Bets and Synthetic Securities

Let’s go back to the casino analogy.


Often in gambling, side bets are more important and/or lucrative than the actual casino game itself. A perfect example of this is seen in the movie The Big Short. Selena Gomez is playing blackjack, and she explains how the side bets placed on her hand are like synthetic securities that are now pervasive throughout the financial markets.  Both in the movie and in the real-world financial markets, the synthetic side bets are many orders of magnitude larger than the “real” bets.


In most financial markets, synthetic transactions dwarf actual physical supply and demand. This is true for stock certificates, barrels of oil, ounces of gold, and bushels of grain.  As an example, each day the NYMEX WTI crude oil futures contracts turn as much as ONE HUNDRED TIMES the actual daily physical supply of crude oil to the U.S. Let me be specific. The paper trading of crude oil IN ONE LOCATION (Cushing, OK), traded ON A SINGLE exchange (NYMEX) – not including any over-the-counter or other exchange trading – is often ONE HUNDRED TIMES the actual physical supply of crude oil over the ENTIRE United States. It wouldn’t surprise me to learn that the ratio of paper to physical trading of crude oil over the entire U.S. is one thousand to one, or more.


Since the synthetic paper markets overwhelm the physical markets, it is important for investors to stay informed of things that highlight derivative risk and potential order flow.  We should “follow the money.”  The options market can provide some clues.


Option expiration is a key moment in time when profit is realized and risk is purged. All options bets and hedges on the books will settle, roll over, close or expire worthless on the op-ex timestamp. My work shows the repeatability of a few different dynamics, which include:  1) the mean reversion of market price prior towards delta neutral on or before op-ex, and 2) forced selling and/or buying following after a spike in market gamma. 

Counting Cards

These are complicated topics, so I make my report as user-friendly as possible. I compile and process reams of data so that you don’t have to. When market price is in the top 10% of aggregate risk to call sellers, I report an over-bought signal. When market price is in the top 10% of aggregate risk to put sellers, I report an over-sold signal. This doesn’t provide an “answer,” but it does give a unique and potentially actionable perspective. 


If we are sticking with the Blackjack analogy, the program that I run each morning is a card-counting machine.  I “count the cards” and do the work for you.

Bloomberg and The Wall Street Journal Agree

I am not alone in seeing the relationship between option risk and market price. Over the past year, there has been an increasing awareness in the financial mainstream media about “gamma” as a measure of market risk. In November 2018, Bloomberg published an article entitled: Two Words that sent the Oil Market Plunging: Negative Gamma.  "Gamma" was the *reason* for the sell off.


In July 2019, the Wall Street Journal published an article entitled, "Markets Are Calm, Then Suddenly Go Crazy.  Some Investors Think They Know Why."  The "why" in the WSJ article, is of course "market gamma."


Therefore, both Bloomberg and the Wall Street Journal agree that intelligence on gamma is important for investors, but you still cannot find actionable gamma data on the $25,000 per year Bloomberg terminal.


I know of no other service where you can find the information that I publish as comprehensively and inexpensively.  I hope that you will give my service a try, and that it helps you become a better investor and trader.


To Your Success,


Erik

Founder of Viking Analytics