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Portfolio hedging flows, price impact, and duration
Large institutions periodically hedge their portfolio risk through futures markets, creating sudden volume spikes that move price. These hedging flows are not driven by directional conviction — they're risk management. The price impact is often temporary and mean-reverts, creating trading opportunities.
When you identify a potential hedging spike (sudden volume, one-sided delta, no fundamental catalyst), wait for the spike to settle (2-5 minutes), then fade the move. Target a 50-75% retracement of the spike. These are mean reversion trades — the hedging flow created a temporary price distortion.