Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are up 75bps after Friday’s massive route. CL is up just +1% despite new wave of aggressions.

TLDR: Friday’s drop was more about crushing call prices/positions vs loading up on downside positions (puts). That leaves this market in a fragile state, and loaded like a spring in either direction. Gamma is not terribly stable, and vols, while elevated, could easily jump higher. When we see a mix in fragile positioning with an insane number of headline-inducing/event dynamics, we arrive to a “let’s just observe” conclusion.

Trump seems to be trying to pull out all the bullish punches here, including “Govt AI investments” and Jensen is touting “new product releases” and “AI stocks are cheap” into this massive SPACEX week, with CPI on Wed. Relatedly, S&P announced MRVL is going into the SPX on June 22nd, and the stock is now +9% after dropping 17% on Friday. Electronics company FLEX is also into the S&P, while Campbell’s soup, and a Swimming Pool company, are out.

We start today looking at the Customer gamma map (vs MMs), which shows that the buyside (i.e. Cust) has very light negative positive gamma around ATM levels, with negative gamma onsetting <7,400, and remaining negative into 7,300. We found that this profile was helpful in navigating Friday’s sharp declines, as the SPX moved swiftly through negative customer gamma. Given this profile we have adjusted our Risk Pivot to 7,390 from 7,490 – the level from the last several weeks, as a break of 7,390 likely sets up a quick test of 7,300.

That said, we do not want to chase this opening move, as a lot of flows have adjusted since Friday AM and into the weekend. There is also just an absurd amount going on over the next 10 days, all of which seem market-moving.

On the topic of single stock positioning, our SGOI change shows that buyside traders were heaviest in selling long calls (+232k), and selling to open puts. This is not such a panic downside as much as crushing of upside expectations.

Interestingly, SPX fixed strike vols are showing higher today, despite higher equity futures. The vol increase is modest, but comes off of Friday’s closing vols which were a massive increase.

Below we have the AM ~1-month vols in yellow vs Friday’s close (teal) and Wed (gray). The left tail is certainly bid (puts), with modest increases ATM vs Friday. This is not what bulls want to see, but it makes sense given everything that is happening both from an investment perspective (events: CPI, FOMC, IPO’s) and geopolitical.

What matters most to SPX vol in the days ahead? Clearly CPI, as you can see in the QQQ term structure (teal) & elevated forward IV (light teal). Then its SPACEX and a big FOMC (same day as VIX exp), then a massive OPEX on the 18th. These all have event-vol, which is not terribly surprising.

First, in regards to SPACEX, there is a lot going on and its impacts are not obvious to parse. What is clear is that a whole lot of capital is going to be allocating to this, and that capital has to come from somewhere. So some stuff has to get sold in order to buy up this IPO. Adding to the intrigue are other developments, like the ~21 SPACEX-related ETFs that are set to launch. Then, the major indexes (Nasdaq, Russel) aren’t going to add until 5-15 days after the IPO, which may alter the flows immediately after the launch. We have absolutely no edge going into this IPO, but we suspect there will be some great trade setups in the days that follow.

Note the S&P500 will not be changing its rules to add SPACEX.

You also have to toss in this headline risk of Trump investing in AI companies. No one wants to miss Trump’s next stock pick, and we gather that Friday’s momo-pounding wasn’t enough to scare off dip buyers.

Flipping to macro, one can see the path dependency of CPI->FOMC given what’s in play: a possible 4-handle on CPI with traders now betting on a rate hike in DEC. However, if oil is much higher/lower by FOMC could that suddenly change the interpretation of inflation going forward? Again, we don’t know, and we suspect no one has a great understanding of the odds through this.

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