Macro Theme:

Founder’s Note:

Futures are off -1.5% after Friday’s OPEX and into renewed trade/geopolitical tension. The VIX is at 20.

Gold and silver both hit highs this AM, with gold at $4,700 and silver $95.

This futures move pushed the indicative SPX price below our 6,890 Risk Pivot, and we now, based on ES we see the SPX near 6,832.

Key support is now at 6,800. Resistance is at 6,900. The Risk Pivot remains at 6,890, but will quite possibly shift to 6,800 for tomorrow if we see material positive gamma form below.

At 6,800 there are some light put sellers showing up from 6,775 to 6,800 (yellow box, blue bars). Below 6,775 is negative gamma (red), which suggests <6,775 equities face another leg down into 6,700.

Normally in these situations 0DTE traders step up, generally selling options which provides local positive gamma. In this case that flow is a bit less dependable. We say this because we now have a clear “known unknown” related to the Greenland/tariff situation. Should Trump take to tweeting, for example, it could quickly inject risk.

With this in mind, we currently see SPX negative gamma troughing near ~6,700 (yellow arrow), which is where we’d start to look for more stability in SPX. Obviously this is an active market, and so if we see large put sellers (0DTE or other tenors) then we’d look for support at higher levels. Both TRACE and HIRO will be helpful for navigating in this situation. If HIRO shows positive delta flows in S&P + equities, it will be a sign that traders are simply seeing this as a “buyable dip” vs something more material.

Gamma is only part of the story here. In risk-off moves it’s IV which is just as, if not more critical to monitor. From Friday’s close we are generally seeing a +2 vol point pop across the SPX surface. Below is the 1-day change in Feb Exp skew, which shows this is generally a parallel shift in skew. We don’t really see a bigger relative jump in downside strike IV as of yet.

It’s important to frame this situation, as we went into Friday’s OPEX with COR1M having flagged a risk-trigger on 1/7, while 1-month realized SPX vol was very quiet at 9%. OPEX is a turning point as the flows that pinned SPX in the 6,900’s were reset, and we made the case that after this turning point vol was likely to pin higher until FOMC next week. Given this new situation, vol likely holds an even higher premium until/unless a deal is made with Europe. This “sticky premium” means we will view any rally as simply short covering, and lacking stability (vol likely has to be sold off for a stock rally persist).

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