Explosive growth in autocallables and reverse convertibles is turning dealer hedging flows into a powerful, and often underappreciated, driver of volatility, liquidity shocks and short-term market moves.
The boom in autocallables and reverse convertibles is amplifying volatility and influencing everything from dispersion to liquidity shocks. Growing demand for yield has pushed structured product issuance to extraordinary levels, and with it has come a surge in volatility-selling strategies that exert a far larger influence on markets than many investors realise. If the market goes through a barrier, all of a sudden everybody needs to sell and there’s just not enough liquidity - Cem Kars