Why the Market Can Crash

This is the bear market in a nutshell. The bulls playing the poker game on the deck of the Titanic. They see an unbalanced market and look for a mean reversion.

What the bear sees is that calls also were at all-time highs only a few months ago. That derivatives trading is such a large portfolio of market activity— notice how it never reverted to pre-2020 level— shows the extent of the bubble.

Also, with respect to the poker game, the value of puts will go far far higher on a crash day. Bulls that are naked short puts will go bankrupt, including firms as large as JPMorgan. No entity will be too big to fail if this market crash. As the market drops, everyone who is short puts has to increase their short positions as OTM put values soar or close (buy back) the puts. On a crash day, there will only be large dealers and financial firms selling stocks trying to hedge the puts they sold, with no buyers, or trying to buy puts with no sellers. Market goes straight down. VIX goes to a level you wouldn't believe.