Systematic trend-following funds have restored their equity positioning to levels observed prior to the escalation of the Iran conflict, according to a note from BofA Securities. The bank’s Systematic Flows Monitor indicates that while European exposure remains stretched, faster-moving models retain capacity to increase allocations in the U.S. and Japan.
Positioning remains sensitive to market direction. A bearish price trajectory could trigger substantial unwinds, with BofA estimating global equity selling could exceed $100 billion. The bank identifies key thresholds for accelerated liquidation: a 3% decline in the S&P 500, a 5% drop in the Nasdaq-100 or Russell 2000, a 5% fall in the Nikkei, or a 4% decrease in the Euro Stoxx 50. Most of this selling would likely emanate from medium- to longer-term trend followers.
CTA positioning in U.S. Treasury futures remains stretched short, though a recent surge in yields has provided relief by pushing short-covering triggers further out. Meanwhile, the U.S. dollar extended its decline on Wednesday, increasing pressure on overextended EUR/USD shorts held by slower-moving trend followers. BofA’s model signals euro accumulation between 1.1691 and 1.1853, based on Friday’s reference level of 1.1679. Trend followers maintain long exposure to the Mexican peso versus the dollar, which has supported recent performance, while Canadian dollar shorts have underperformed despite limited stop-out risk.
In commodities, trend followers added to oil longs amid renewed geopolitical tensions in Iran, with medium-term models leading the increase. Gold’s rally persisted, though CTAs have yet to meaningfully participate following the recent flattening of shorts; medium- and long-term gold trends remain negative, though the fastest-moving models may soon begin accumulating longs. Trend followers remain stretched long in copper and soybean oil.
Options market dynamics as of August 20 showed S&P 500 hedger gamma at $3.2 billion, equivalent to the 39th percentile over the past year. Monthly option expiry accounted for $0.6 billion of total gamma, with hedgers net long approximately 5,000 contracts between 7,550 and 7,750. Hedger gamma is positive across all expiries in the following week, with options expiring during the Jackson Hole conference on August 27-28 contributing roughly $2.8 billion. Hedger vega positioning in options with more than one-month expiry remained net short, consistent with the prior week.
