Although 2008 epitomizes the bear market in equities, recent years witness higher frequency of severe episodes. In addition to the usual macroeconomic factors, the unpredictability of these events is also related to the changing market microstructure – most notably the effect of derivatives.
Gamma refers to second-order properties of market price action. While technical, the size of the options market has become so big that it reversely affects prices in the spot market. We believe that market participants that do not acknowledge this are playing a yesterdays' game.
