Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are off 10bps with no major data on tap for today. CPI was today, but that has now been canceled due to the shutdown.

We had marked CPI as adding about 1.5 pts of SPX event vol premium, and with that data release now gone it seems to be instilling a sense of uncertainty that is preventing a small release of vol. We see this in the comparison of SPX fixed strike vol from Tuesday night vs today, with the key here being that vols are up across the board even though the SPX is only about 10-20 handles lower from yesterday’s opening levels. PPI, allegedly being released tomorrow AM, currently seems to add about 1.5 vol points, too. Assuming PPI is benign, then vol may finally drop into NVDA ER on Wed PM, which could get SPX up into 6,900. Don’t forget that after NVDA is essentially Thanksgiving, which is a chance for vol sellers to step in. Again, we think this is all about events & data that “just don’t screw it up” for bulls vs having to prove a bullish narrative.

We also note a pocket of negative gamma above from 6,850 to 6,900, which was also present yesterday. This had us thinking that area could lead to a fast equity market pop, but HIRO was -$10bn(!), preventing any such stock lift. Today if we see positive HIRO values then we will be watching for some slippery upside. We also note, similar to yesterday, small but net positive gamma strikes from 6,800 – 6,850 which signals light support.

While we stay long while SPX is >6,800, its clear the general market is positioned for higher prices, too. We see this in fairly rich call skews for top single stocks, indicated by these stocks being in the lower right Compass quadrant (yellow box). Its interesting that there is such a bid to calls given the lackluster performance of stocks which are essentially flat over the past week. This highlights a critical point here in that if NVDA meets/beats, then stocks should move sharply higher. Conversely, anything that pushes SPX <6,800 likely triggers a pile-down from equity call positions to puts.

Lastly, GLD & SLV are on an absolute tear, and are in pure “stock up, vol up” form signaled by their position in the top left quadrant of Compass (green box). We saw a flavor of extreme 99th %’ile metal vols into October 20th when GLD hit $400, which triggered some put fly trades (see here & here), but the current position (GLD $385) seems to be more of “building into higher vols” vs “tapping out”. With that in mind, should you want to play longs the focus is probably better for call spreads, not outrights, because those calls are getting pretty rich.

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