Total Return Swaps (TRS) on US equity underlying positions again foreshadowed the market volatility that occurred last week. We see the pattern repeatedly and the data shows how well TRS traders can predict, time or move the market.
We mapped US Equity Swaps (TRS) daily trading exposures against the movement of SPY, State Street’s SPDR S&P 500 ETF Trust. TRS volumes shot up on July 18, which was an options expiration date. That’s typical for the market. But they shot up again on July 24 and again on August 1, On July 25 the S&P 500 rose, then volumes spiked as stock prices declined significantly. The volumes traded on August 2-7 got the tail end, while the trades on August 1 took full advantage of the downturn. Here’s a chart of the data:
We then ran a correlation analysis of TRS exposures on T+1 against SPY closing prices with a one day lag. The value was -0.59, which statistically speaking looks inversely correlated. This is no definitive proof (we’d want to see -0.85 or lower for that), but -0.59 is still interesting.
We’ve shown a solid relationship in other work between TRS trades in midcap names and the trading price of the stock on T+1. This example shows how TRS traders work again of broad market movements as well. We again think that the cleaned TRS data file is a leading market indicator, especially when used with news reading services that help spot market directionality.
About the US Equity Swaps data:
Finadium aggregates and cleans data on Total Return Swaps, Contracts for Difference and other OTC equity derivative products as provided by the DTCC’s Security Based Swaps Data Repository. Position and volume data can be searched by ticker or ISIN. The data shine light on an important dimension of leveraged trading activity on the long and short sides of the market. This file captures data from security-based swap dealer reporting. DTCC has the mandate to publish this reporting from rules on Security-based Swaps published by the US Securities and Exchange Commission (SEC) and the US Commodity Futures Trading Commission (CFTC).
Finadium subscribers can access raw and analyzed data at https://finadium.com/us-otc-equity-derivatives/
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