 Hi guys, Eddie here and welcome to another video. I know it's been a while But I promise I'll be uploading a lot more new content Over the coming weeks now the busy summer period we've had Amplify trading is over Now I'll be able to contribute a lot more to the YouTube channel But one thing you can do for me subscribe to the channel like the video if you enjoy it And now obviously help our exposure and help us to get a lot more content out there But today, we're going to be covering why the VIX so the volatility index has actually been increasing Even as equity markets headed higher So usually this volatility index works inversely to equity markets. It's sometimes Kind of seen as a fear gauge. So essentially what it is. It's a 30-day forward-looking expectation of S&P 500 specifically Implied volatility in contrast to realized volatility and like I mentioned, it's kind of like a fear gauge And usually as equity sell-off you'll see the VIX rise as equity market participants or portfolio managers seek to protect That equity sell-off with some downside protection in the form of the VIX Actually, what we've seen is the VIX at the highest level ever With equities at all-time high so every time equities have been at all-time high This VIX reading is the highest it's ever been Okay, and as we've seen over the weekend and particularly on Friday We've seen a lot of news come out now about the Japanese conglomerate firm Softbank So they've got this essentially 100 billion dollar fund and recently they've actually been purchasing Call options. Okay, so they spent four billion Okay on option premium on particularly US tech tech stocks And this has a notional amount of about 30 billion. Okay, so my Yoshi son He actually lost 40 billion in the dot-com crash And you know, this is obviously why Pop market participants are looking at this as a bit of a warning signal So I'm going to dive into what's actually going on here below the surface But essentially what this is Softbank is it's a momentum buying strategy. Okay And it's a phrase that's been coined by a Nomura strategist that came out of the FT article It's essentially the tail wagging the dog and this feedback loop Okay, and obviously this is comes off the back of the Nasdaq down 4% last week the worst Week since March in the depths of the coronavirus crisis and actually it was down up to 10% From the old-time high peak Okay so Essentially in almost one line what's happening here is Obviously Softbank big big firm huge funds under management They were buying call options and obviously we've seen in the equity markets lots of things contributing to the equity markets going up like Stimulus checks global central bank easing and obviously the market concentration of these tech companies making up such a You know a huge proportion of the S&P and obviously particularly the Nasdaq Okay, so people were purchasing these call options. Okay, and obviously when a big buy side funds You know an asset manager or a hedge fund when they deal they actually will have to contact an investment bank Okay, to make that trade. Okay, and as they are long call options The investment bank would actually be short those call options. So they would be it would be short. Okay, then To hedge their market risk if they are short on this option position The dealers will have to hedge these short positions. Okay, and what does that mean? They're buying stock. Okay, so obviously contributing to the stock market rally Okay, and they're hedging things like complicated things in the option world like Delta and Gamma Okay, and obviously as a result of this, you know, the size of this trade being so big This is actually exacerbated both the buying so to the upside and also the downside as well And obviously the where we are at the moment. We're in all well, September now I don't know where time flies to in the coronavirus kind of era But usually volumes are relatively low in the summer as people go away if they could go away But they usually they're off the desk particularly now today. We've got a US market holiday. Okay But really then, you know, the nitty-gritty of this is that this options market boom both by retail and obviously now Institutional has left this market particularly vulnerable to market volatility in both Directions so up and down so the start coming from Goldman Sachs is the overall nominal value of calls traded on Individual US stocks so relative to the index has averaged 335 billion a day Okay, so over the last two weeks and this is more than triple the rolling average between 2017 and 2019 Okay, so soft bank have been revealed as this kind of nasdaq whale Purchasing huge amounts billions in fact of call options and really this is Exasperating the moves in both ways because this flow Okay, it's so substantial the billions that are actually being pushed through this market. This actually increases the implied volatility So that's the VIX. Okay, so this is how you see equity markets, okay and things like the volatility index both increasing at the same time Okay, so institutions using the call options to participate in the upside but also They're purchasing VIX calls as well And this is kind of like this barbell strategy that we've seen over the recent years where Funds have been piling into tech stocks and then nothing in the middle no industrial things like that They're going at one end of the spectrum So in the technology names and then going all the way down in the other end of the risk spectrum So things like government bonds. So we're seeing this barbell effect So what for you know institutions are actually doing light soft bank are buying call options on the stock Okay, or this individual name. So the equity indices or the individual names plus they're buying Volatility right or protection for volatility like VIX calls. Okay So while these institutions are actually using these sophisticated option trading strategies, okay We've now seen retail, you know participation increased dramatically And you've all seen it in the news of robin hood traders and retail traders using these options But the unsophistication is really where the problem is right So if you think about the robin hood names and things like that, they're just owning the underlying stocks, right? They're buying Hertz or The fangs as an example, but actually they're not using Let's say VIX calls Potentially, okay So they own the underlying names, but not actually things like derivatives that have a bad name But actually are very useful for protection. Okay, so the institutions are using VIX calls and stock calls Whereas the robin hood traders actually own these stocks outright because they just don't have that level of let's say training Okay, so obviously we saw a really sharp correction Classes 10% draw down in the nasdaq last week Will we see another, you know, really sharp correction? Just like we saw In march when the market bottomed on the 23rd of march that was around a 35 percent drawdown so You know will retail traders if they are involved maybe after the after the march pullback, you know Do they have the education to really protect their downside or you know? Be able to really stomach more than a 40% loss We'll see But I hope that made some some sense The options world is relatively confusing But I hope that shed some light on what's going on below the surface when it comes to firms like softbank buying these huge volumes of options So please do like and subscribe to video this video And if you enjoyed the content leave a comment as well. If you want to see anything else Let me know or hopefully definitely be a lot more active On the youtube channel again, because you seem to enjoy the videos. So take care and have a good week