November 8th, 2021 by Richard

The FTSE's R3 Hedge Ratio problem not gone, just moved.


Nb. Our comment from the 11/01/21

Well, if the first week was all about R1 holding the line at 7200, the second week was all about the other end of the bandwidth.

This meant we did get our test of R2 at 7250, in fact it was the very day we published, being Monday 25th October with the intraday high of 7247.53 before closing 25-points below. Actually, there were two tests that day, several hours apart which made for a very plain chart highlighting the effects of the dynamic delta there.

As one can see in the table above, R2 above the zone has gone, now being part of the R1 ratio bandwidth. The question is when? As on the Tuesday and Wednesday last week the intraday highs were 7281.17 and 7280.45 respectively, both being tantalisingly close to the next level, R3 at 7300. Therefore, we suspect that this change happened then, if not on the Tuesday, then the breach that day probably precipitated the change by the Wednesday.

Either way, hitting R3 is a very serious number of futures selling as our grading of the hedge ratios depicting the dynamic delta are exponential, so going from R1 to R3 is not just a linear experience, but more like a doubling.

This is a shame, as it is plain to see that the FTSE wants to go better, it just can’t seem to get past all those futures coming out onto the market.

Making this all seem so much worse, is the fact the other indices, especially the SPX, are also happily making significant new all-time-highs as they are just fighting the Y ratios, while the FTSE languishes.

In fact, the opening price of the FTSE on the first day of this expiry was 7234.03, meaning in the two intervening weeks the market has only moved 3-points.

In conclusion, our view hasn’t changed as we still see this index eventually beat a retreat back to its zone, the only question is when.

If similar to the last expiry, soon would be best, then it can spend two weeks excitably pinging around in there, before cutting loose for the final week.


Range:            (7150) 7200  to  7250       

Activity:          Poor

Type:              Bullish


Nb. Our comment on 11/01/21


Well, we certainly didn’t get the retreat back to its zone but, there is definitely no doubt now that wants to go better. It’s just a question of will the ratios let it.

This time last week, Monday 1st, saw the intraday high of 7303.39 giving us the first definite test of R3 at 7300.

We then had to wait until the Thursday 4th before the market ventured back there again, this time with the intraday high of 7292.96.

The next test would be strike 3 and anyway we are 99% certain that by Friday 7300 had dropped to R2. Don’t forget the last time we saw R2 it was at 7250, the level that had such an influence on this market in the second week of this expiry, so it is no pushover in itself.

This is probably why the market hovered around 7300 for most of that Friday but, R2 is obviously a lot less of a hurdle than R3.

And if there was any doubt as to how much activity there must have been to bring about such a change, then all you need to see is that B1 has now gone.

The problem for the FTSE is that it hasn’t really got rid of its R3 problem, it has just pushed it back to 7350 now.

It does mean though that everyone is hitting new all-time-highs, with the FTSE managing a rise of 0.91% on the week. However, with the ratios holding it back this a very poor comparison to the DAX, CAC and SPX which managed 2.33%, 3.07% and 2.00% respectively.

There is still two weeks to go in this expiry but towards the end of this week the rollover and expiry will start to play a more important role, and this is across all markets. On top of this, next up is the mighty Dec expiry, the biggest of the big, so it’s no bad thing the markets are getting used to dealing with higher levels of ratio but, at the end of the day, one or the other will have to give way.


Range:            7300  to  7350       

Activity:          Moderate

Type:              Bearish


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