Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are off 50 bps, with Jobless Claims at 8:30AM ET, with AVGO earnings tonight.

While Powell sparked a sharp test of 6,900 post-FOMC, tech never seemed to buy into that move (QQQ +40bps), at least the way IWM did (+138bps). That was foretelling, as ORCL stunk up the room with their 4PM earnings report (stock – 12% AH).

One could argue that the reaction to the ORCL report isn’t all that surprising, given traders were leaning very long into the report itself (per yesterday’s “synthetic long stock”/heavy call skew & low put skew positioning flag).

What we are left with is the SPX essentially unchanged from yesterday’s open, and predominantly negative gamma from 6,800 on up to 6,900. Given this, we continue to hold our Risk Pivot at 6,800, but still see a clean path on up to 6,900 & 7k. We are going to be hard pressed to believe in an actual correction/sustained selloff until/unless SPX goes <6,800.

On this point, we are searching for the path of least resistance here, and maybe you don’t want to believe in upside because of your macro narratives. Thats well and good, its just that we see no resistance to upside (i.e. no positive gamma), and IV’s are sinking. This is happening into year end, which is ladened with holidays and traders looking to take time off. In our opinions, this makes shorting a difficult prospect. Sub 6,800 vol would likely start to trend higher, and negative gamma becomes a driver of downside.

Ultimately, in these situations, we go to the volatility surface to gauge fear. After slicing the surface in a myriad of ways, the cleanest summary of how traders feel post-FOMC/ORCL is show in SPX term structure, wherein you can see that SPX vols are down about 1 vol point across the board. Its a parallel shift across skews, meaning there is not signal of a post-event bid for puts, nor calls. At least, not yet. Its possible that as the market opens and AI/semi trading picks up that the tone changes, but thus far all seems rather quiet. Quiet is all thats needed to push vols lower, which helps to lift stocks.

Keep in mind that realized vol (RV) continues to drop, with 1-month now at 12.5%, and 5-day RV still at ~5%. This suggests IV’s can continue to move a bit lower…

On this topic, we were flagging how cheap upside SPX calls are into year end. Highlighted below are 20-25 delta calls, and they are in the <10% IV (really low) to 12% range, which makes them great risk/reward ways to play upside. Its more than possible that you are not a believer in upside, the point here is that 10% SPX calls are cheap.

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