Brexit Day

Wed, 2017/03/29 - 12:51pm | Your editor
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Today British PM Theresa May delivered the “Brexit Letter” to European Union President Donald T. The T is for Tusk, in case you were wondering, the Polish president of the EU Commission.

As promised here is something I got out of the Qwafafew quantitative analysts' club discussion of exchange-traded funds last night. Long-time club guru Matt Moran helped us retroactively work out how money was made by users of the CBOE “skew”index. From Europe, and particularly Ireland, punters could front-run American investors with Chicago Board bets against the smart money expecting a Clinton victory.

Intervening when US markets were closed in reaction to boosts for Trump in chatrooms, twitter, and social media—what Moran called “stocktwits”--these overseas betters on skew, or tail risk (the odds on an unexpected move of markets—were able to make gains dozens of times larger than those who merely bought and sold the CBOE index. They were 6 hours ahead of investors in the US who were still asleep.

Mr Moran now has worked out a new way to play social media in the future with a “stocktwits” chatroom index for social media using the S&P 25 index of large US stocks. Of course, once it becomes a way to hedge political outcomes with a systematic single move, the gains from an oddball outlying outcome will have to be shared with more people. Mispricing will be reduced.

But still I am impressed by the ingenuity of Matt Moran's stocktwits play based on what he learned looking back at performance of US volatility and skew indexes during the 2016 election campaign.

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