Initially, risk-parity funds and systematic strategies, who held sizable “long” positions in February, were forced to sell holdings as a direct result of the sharp increase in the VIX that led to volatility-driven portfolio rebalancing. This dynamic was then amplified by swap dealer “negative gamma” positions, as many banks were short “puts” below the market which are now “in the money”. This combination of forces has led to wild swings as market makers are forced to sell into weakness and buy into strength to maintain a delta-neutral portfolio. Like crude oil, this forced selling ultimately snowballed and has very rapidly flipped many of the prevalent CTA trend and momentum signals from “long” to “short”. The aggressive selling has added to market volatility as bids continue to back up as natural buyers disappear.
more of course
http://www.zerohedge.com/markets/risk-parity-negative-gamma-cta-feedback-loop
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