Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are +10bps with no major data on the tape.

Key Levels for today are 6,900 resistance, and support at 6,850, 6,820 and 6,800. Today’s straddle is just 37bps, so watch out for shake outs.

The big resistance is at 6,950, which has is up a bit from Friday’s 6,725 largest positive gamma. However, this is driven primarily by rolling short dated positions. Its similar to the downside, where we now see some light positive gamma at 6,750 (up from 6,700). This matters, because if you are doing post-FOMC planning, you need to know where the sticky positive gamma is located. For today & tomorrow we’d expect 0DTE traders to come back in at these highlighted levels to sell options, which produces local positive gamma (i.e. gamma tied to specific strikes). However, positive gamma which is only supplied by 0DTE is inherently unstable. So, while we feel alright about market stability today to FOMC (Wed), we are treading a bit lightly post-FOMC.

Whats the worry about post FOMC? Well, there is no positive post-FOMC gamma – at least currently.

You see this via SPX GEX in EquityHub, wherein the all expiration GEX shows some decent positive gamma around current SPX prices, and peaking into 6,950, which coincides with the bright blue area of TRACE, above.

If you remove 0DTE options (i.e today’s exp), you see the GEX is negative across the board (dashed line). “All of the positive gamma supply in 0DTE options” has been a feature of recent markets, and we flag it here because if you start to position for post-FOMC you can’t count on the currently-positive gamma spots.

We’ll start to dial in downside levels for FOMC as we approach Wednesday, but the upside level is clear: 7,000. Its a massive OI strike (and big round number). Downside is currently open to at least 6,700, but let’s not forget that last year on DEC FOMC Powell delivered a 3% smackdown to SPX. We’re not saying that happens again this year, but this is the type of positioning that can facilitate that. Again, we’ll dig into FOMC positioning tomorrow & Wed as larger FOMC positions come into the market.

Relatedly to the gamma positioning, 0DTE IV’s have been particularly low over the last week (0DTE straddles have been ~40bps). Accordingly, we also saw several “out of nowhere” intraday moves in the ES/SPX (see chart) – all of which have mean reverted. Additionally, on Friday we flagged how cheap the ~6,900 area pre-FOMC IV’s were (<8%).

Interestingly, Friday AM saw a quick 35bps move in <5mins, which immediately gave way to an “out of nowhere” 70bps move to 6,900 – which subsequently fully reverted back to opening levels. Some of you may be saying “50-75bps ain’t that big”, and, generally we’d agree. However, Friday’s 0DTE straddle was 42bps, and so the opening move down of 35 bps, plus 70bps rip to 6,900 (coincidence?), then 56bps drop back to opening levels. So, on an open-to-close basis the SPX move was literally 4bps, and on a close to close basis it was 20 bps (i.e. very low vol and within the 0DTE straddle).

Friday was just like the previous several sessions in that the straddle is realized right near the open (i.e. there is a sudden move near the straddle price). What’s the point? Well, today’s 0DTE straddle is $25.5/37bps, making it the lowest we’ve seen in recent memory.

These cheap-0DTE IV games are likely only in place for today & tomorrow, then FOMC changes both the gamma and IV picture(s).

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