Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are off 20 bps with Jobless Claims at 8:30AM ET.

This is becoming (excruciatingly) repetitive: major support remains at 6,900. Below there, we look to be short due to negative gamma which feeds into a likely increase in vols. However, above that, everything looks “a-ok”. In fact, todays 0DTE straddle is a bottom-basement $28.5/41bps which is nearly as low as it gets. This very low 0DTE IV juxtaposes against a move higher in longer dated IV: VIX is 15.75 (a ~2 week high).

The >=1-month vol bid vs “no IV 0DTE” clearly depicts a lot of catalysts that traders are positioning for post-OPEX and into EOM, not just with FOMC, but also major earnings kicking off. Note the reflation in >=1-month IVs by comparing 1-month SPX IV for today (teal) vs 1-month IV from 2 weeks ago (gray). The skewness of this is also interesting: SPY call skew is +72nd %’ile while put skew is 28th %’ile. Traders being bulled-up is not terribly surprising, given we are at ATH.

So, what’s the takeaway? No one is positioned for any type of material weakness before OPEX/FOMC. That makes this the interesting trade, in our read. Does lack of positioning make a decline <6,900 probable? Not necessarily – but it is quite cheap to bet on. Certainly selling 0DTE options with those IVs in the gutter seems not worth the risk/reward.

The more interesting trades may well be in the memory-related stocks, which have been on fire. Below we highlighted just a few, which are catching a tailwind from MU’s strength and NVDA @ CES. These are “stock up, vol up” names, and their rate-of-change over the last few days has been amazing: LRCK +23%, SNDK +40%, AEVA +25%. We’re not suggesting these stocks have made all-time highs – but the rate of change, and their IVs feel unsustainable. These types of moves, in addition to some upcoming ER, have COR1M sniffing the 8 area which is a big risk signal (info on that idea here).

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