MyStratWeekly – May 9th 2023

Topic of the week: Forget YOLO, it is YOL0DTE* (You Only Live 0 Day To Expiry).

• 0DTE options make up 40% of US equity option trading volumes;
• Retail speculation is driving the market;
• High trading volumes raise concerns about financial stability and intraday risk monitoring;
• Volmageddon in 2018had led to large losses on structured volatility products, but 0DTE long/short positioning appears more balanced;
• 0DTE allows for event risk hedging; 
• The CBOE just launched a 1-day VIX as standard VIX fails to respond to banking turmoil in March. 

Market review: Divergence between the Fed and the ECB

• The Fed signals a pause, the ECB: further rate hikes;
• Resurgence of fears over US regional banks;
• Significant steepening of yield curves via the short end;
• Decline in equity markets and increase in volatility.

Axel Botte's and Aline Goupil-Raguénès's podcast

• What to expect from Central Banks meetings this week?
• After the acquisition of FIRST REPUBLIC by JP MORGAN, should we expect further consolidation of the US banking sector? Will the big American banks have the means to take over the most fragile ones?

Chart of the week

The ECB's survey of commercial banks revealed a further sharp tightening of credit conditions for companies and households in the 1st quarter. For companies, it is the strongest since 2011, during the sovereign debt crisis. Banks also reported a sharp decline in demand for loans from enterprises, the steepest since the 2008 financial crisis, as well as from households for house purchase  (near all-time lows). In both cases, this is mainly the result of the sharp rise in interest rates following the strong monetary tightening carried out by the ECB.