Macro Theme:

Founder’s Note:

Futures are 40bps higher, as CL has come in -3% to 101, which has provided a respite for higher rates.

NVDA is the main event tonight – more on that below.

TRACE reflects that MMs maintain a positive gamma stance, with the big strike being 7,415 for today as there is a fairly large 5k lot 0DTE call spread struck at that level. This means that MMs are positioned to continue to throttle volatility and we do not see that changing into tomorrow, either.

NVDA is absolutely a market-wide event, as its perturbed the term structure of major indexes and major stocks, alike. You see this in the NDX below. Also note that the forward IV (spiker top teal line) is higher out in time. This is informing us that IV is well supported here, meaning we dont see a vol crush for indexes coming in the next month. That would change if a magical peace deal is signed with Iran – but conversely we cannot shake the idea that SpaceX brings a new round of equity bids which could reenergize call vols….TBD.

IV Rank is 57 for NVDA, which is quite high into an earnings report. The implied ER move is 5.2%, which is actually in a bit from previous days (~6.5%).

The top feature of the vol surface into earnings i the bid to calls, which is 99th %’ile vs he puts which are at 0 %’ile. Said another way: traders are only hedging/playing upside. This informs us that the feature which can be likely most exploited is that rich call IV & skew – however that has been a very dangerous game to play into this earnings season. That said, we think call flies or broken wing call flies may be interesting ways to play these earnings results with the idea that an inline earnings upside move (~5%) could generate some positive deltas, and the short 2 calls could add protection/benefit from IV contraction.

Our new gamma maps show thick positive gamma support from 200-220 and light positive gamma above into 230. 230 is roughly a 5% move. If we get a move over 235, that implies the stock could run up into 250 due to local negative gamma. Note, though, that the negative gamma goes away after Friday’s OPEX. The takeaway here is that we think NVDA has its initial ER reaction, then moves back to a lower realized vol trending move.

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