Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are off 20bps into today’s very large March OPEX.

Below is a snapshot of today’s OPEX, which at ~$1.8bn delta notional is a large quarterly OPEX similar to June and Sep ’24. We note that it is put-weighted in the S&P (SPX + SPY) and Index (Nasdaq, Russell), and we generally look for the clearing of put-heavy expirations to bring a bid to stocks. Given the SPX is currently in the 6,500’s, if the Iran situation is relatively mild over the weekend, stocks may “dead cat bounce” today and into Monday back toward the 6,700s.

Ultimately we have to respect the chances of a strong OPEX bid here, while understanding that it’s not likely a bottom until/unless crude oil meaningfully declines. As for today we think any intra-day market bid could fade into the weekend as traders dfo not want to hold risk over the weekend.

Negative gamma abounds in the SPX – and that remains true post-OPEX. The TRACE visual shows the impact of the SPX AM expiration at 9:30 AM EST, which is when the bulk SPX contracts expire. You can see the TRACE map loses a lot of intraday negative gamma (dark red zones) between 6,700 and 6,400 at 9:30AM. Then, after the 4PM expiration, large zones of positive gamma expire >6,700 and <6,400 roll off.

To put it a bit more plainly: the gamma board is reset.

We can visualize this another way with the EquityHub view of the SPX GEX. The current negative GEX (purple line) “smooths out” a great deal (GEX – today’s OPEX, dashed line) after OPEX. You can also see the dominant strike on the board is the 6,475 JPM put position, which expires on 3/31. If the SPX remains in the 6,400-6,600 range, then the gamma at 6,475 will continue to grow, which makes it even more of a support/magnet for markets. That 6,475 level is now only about 100 handles (-1.5%) from current SPX levels, and so it’s distinctly in play until the end of March.

Ultimately here this remains all about oil. We shared this chart of CL1 (oil, candles) vs VIX several times over recent days. As you can see, the two are very correlated since the Iran conflict kicked off. If oil continues to rally, then VIX goes with it. However, we think from this point, if oil spikes then VIX may “outperform”. Further, after 3/31, the implied market support near 6,500 goes away.

This matters to us, because realized SPX volatility has been quite contained – we’ve not seen a sharp 2-3% downside plunge since this debacle started. As a result, traders see VIX 25 as “rich”, and that is true given the 12% realized SPX vol. However, if the SPX starts to drop at 2 or 3%, that would equate to realized vol of ~30-40%, which means VIX has to go >40. Post 3/31 we think this scenario has a much higher probability.

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