Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are off 30 bps. VIX 18, with CL flat.

Watch ES movement near 9:30 AM EST as VIX options expire on the open. This can create unusual equity jumps.

MM gamma remains positive, which is supportive of equity prices. This is throttling volatility. Support for today is the 0DTE spread at 7,325, then 7,300. Resistance is at 7,400. We continue to think the market correction post OPEX makes sense, and that the main event is NVDA earnings tomorrow night. Interestingly if you flip to the customer only map you will see negative gamma <=7,300. MMs clearly have this hedged out.

We’ll offer a full NVDA analysis tomorrow AM.

This AM is VIX expiration. Normally it’s on Wednesday, but the Juneteenth holiday shifted VIX exp to today. VIX expiration is set 30 days before the next SPX OPEX.

April VIX exp marked a local low in the VIX/volatility, and vol seems to be contracting here – just as stocks are contracting. We don’t think this VIX exp is as meaningful given the NVDA catalyst.

Our heatmap shows MM’s short VIX options, particularly above >18. You can see how much expires today, which leaves a lot less exposure to manage post-VIX exp. This suggests less risk to hedge.

If you want to counter the MM supportive volatility positioning, look no further than rates. We are obviously not macro guys, but the breakout in rates is certainly a concern for the equity market.

What is interesting about this, is that rates and equities have become positively correlated since the Iran situation – largely due to the trust in the AI trade. The NVDA/SPACEX situation is going to put this relationship to the test, as the AI bulls have a higher bar to jump over now. This also highlights an important dynamic about hedging equity downside here: you cannot do so with bonds. You have to go either to maybe energy (which has idiosyncratic risk), or simply equity vol (VIX, puts, etc).

Below we have our SPX put demand for buyside traders. What we see is that there is not a high level of buyside long put positions which syncs with the idea that MM’s have been long the puts – buyside has been selling them. Currently this doesn’t seem to matter, but we suspect if the NVDA/SPACEX catalysts don’t provoke equity upside then we should all assume crash positions as traders have to go from short puts to long them.

Note this chart below is based on contracts, not gamma. This is why we can see puts net being sold here, and local negative gamma in the TRACE GEX chart for the customer set.

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