We've been talking a lot about gamma this week. For good reason, I might add.
When people lose money, it's almost exclusively because of their gamma exposure.
What's terrifying is that most people have this kind of exposure in their portfolios... and they don't even know it.
Certain market events - like a small bubble bursting - can cause things to blow out. Usually, that's preceded by growing concentration in a single stock or asset class. Think internet stocks before the dot-com bust or real estate before the housing market crash in 2008.
This time around, that concentration is happening in the largest stocks on the market, which means the Nasdaq 100 and the S&P 500 are carrying a major unknown risk.
In fact, just six names represent about 50% of QQQ, the ETF that tracks the Nasdaq 100. A few years ago, they represented 40%, and a few years before that, even less. It's the same story in the S&P 500. The market is getting more and more concentrated in just a handful of names.
It's a setup for total disaster.
In 2018, we saw a Gamma Bomb explode in a "short vol" security that traders piled into to take advantage of historically low volatility... and the entire thing came crashing down, wiping out $2 billion in a single trading day.
Fortunately, that bomb was contained to just one very trendy ticker.
If something goes wrong in one of these six stocks to set off the Gamma Bomb, we could feel the shockwaves throughout the entire market.
The dominos are already set up to fall; at this point, the best thing we can do is prepare.
Personally, I'm getting ready to trade it. You could also try to avoid it. The one thing you CAN'T do is ignore it. The diversified ETFs that everyone counts on to "protect" them aren't really very diversified.
I'm hosting a webinar tonight to talk about what's going on, what signs I'm watching for that the fuse has been lit, and what you can do about it. This could all go down as soon as July.
You do not want to miss this event tonight, May 24, at 8 p.m. ET. Click here to reserve your seat.
I'll see you there,
Mark Sebastian
The post Why Ignoring Gamma Exposure is a Costly Mistake appeared first on The Profit Takeover.
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