The Looming Unwind

Last week, we outlined how the recent recovery in leverage in the derivative markets combined with thin end-of-year liquidity would exacerbate volatility. This same message continues to ring true.

Open interest is elevated, and the market has become susceptible to an unwind via a long/short squeeze in the coming weeks. Even a small supply-and-demand catalyst has the potential to cause a big shift given these current market conditions.

We want to dedicate this week's report to describing how we're approaching this period and defining the probabilities we're weighing with each scenario.