The vol supply that never went away
A story from my market-making days that shapes how I still read index vol today.
When I was on the desk, the systematic vol selling on the index was so relentless it felt like it didn't even care about price.
The big flow back then was the monthly roll. On the third Friday of every month, you'd get a wave of the next month's calls dumped on the street. A ton of upside calls sold at once, like clockwork, month after month.
So I'd sit there waiting. Sellers are coming, I'd think. I'll let vol get smashed and then pick up some cheap gamma when it comes to me.
The problem was the size.
You'd take some down feeling clever about the entry. Then someone would quote you in enormous size again and just gap straight through your level. Almost price-insensitive. The sellers didn't care how big the roll had already been. They just kept coming.
That taught me the number one lesson about structural flow. It has to happen. The programmatic seller is trying to execute a mandate. Price is a secondary consideration.
That supply never went away. It just changed form.
The monthlies became weeklies. The weeklies became the 0DTE machine we have today. The maturity keeps compressing. The structural selling stays.
For me, that's the thing to understand about index vol. A huge amount of what looks like random supply is structural selling that has to happen. Programs, mandates, systematic programs unwinding. The flow shows up on schedule.
If you know it's coming, you can position to be on the other side of it.
Want to know more about my process?
The framework I built across 20 years on bank options desks is below.
The generalisation past index vol.
Anywhere a big programmatic seller has to be present on a schedule, the same dynamic plays out. Commodity index rebalances. Leveraged ETF closes. Corporate buyback windows. Monthly options rolls. When the flow is required rather than opportunistic, price matters less than execution.
The trade for the other side is to know the calendar. Know when the supply hits. Know how much has to move. Position for the levels that get overshot and then reclaimed once the mandated flow clears.
That's it. That's the whole edge on structural supply.
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Imran
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