UBS Equities-Global Strategy _Where are the convexinflectionpain points...-118493189

ab27 October 2025Global ResearchGlobal StrategyWhere are the convex/inflection/pain points in global markets?Option delta hedging: a price movement amplifierDerivative trading can (significantly) impact asset prices via feedback effects of delta hedging strategies followed by option dealers to cover the directional risk embedded in their options portfolio. When a trader sells an option and the underlying price converges to the option strike, the option seller is constrained to readjust his/her risk by either buying back the option, which is costly, or by buying/selling the underlying. He/she usually opts for the second alternative, meaning he/she will be buying an asset as it rallies, or selling it as it sells-off, ie amplifying the recent price action.CTAs' flows: another price movement amplifierCTAs are low-frequency systematic macro hedge funds. They use sophisticated computer algorithms to identify asset prices' trends, trying to benefit from persistence in asset returns. Given their size and high trading activity, it has become harder to ignore their market impact and everyone is trying to assess their positioning and their potential flows. We tried our hand, and built a detailed model that mimics their key trading strategy across all asset classes. More details on our CTA framework here.Levels to watch based on 1) short-dated options, and 2) CTAs' positioningNasdaq 100: 1) We are in the middle of the reporting season, and investors appear cautious about the elevated earnings expectations for Tech+ companies (+18.3% YoY growth expected). Lots of short-term gamma on the Nasdaq have been bought as a consequence; 2) Like for the S&P, CTAs are max long the Nasdaq. The trade is deep in the money, meaning you will need a decent sell-off (roughly -5% from here, ie. below 23900) before they start cutting.Eurostoxx 50: 1) More downside hedging in SX5E vs. its US counterparts. Option positioning is evenly distributed across (lower) strikes and expiries; 2) Despite unenthusiastic economic data in Europe and political uncertainty in France, CTAs are max long SX5E. 5450 is the level at which they will start unwinding.More on other equity markets here.EUR/$: 1) The EUR/$ is trading at the bottom of its 1.16-1.18 range. Options traders seem to favour a rebound from here. Big strikes at 1.17 and 1.20; 2) CTAs have been very long the EUR/$ until late last month. They cut ¾ of their EUR/$ position in a span of three weeks. Unless the currency goes back to 1.20, CTAs will be responsive to any price action (up or down).$/MXN: 1) It has been a good year for Latam currencies. Option dealers appear ready to play some short-term mean reversion (ie. higher $/MXN). 19 and then 19.7 are the levels to watch; 2) CTAs have just started to take some profits on their MXN longs. More risk reduction is in order, unless $/MXN goes below 18.2. More on other FX markets here.US 10y (TY contract): 1) No directional view from option dealers on US rates, we are at peak