Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are 15 bps higher. No major data is on tap for today.

Yesterday was another “buy the dip-day”, as early equity market lows reverted back to opening highs. This is what one would expect from large positive gamma, which continues to dominate both the SPX and top single stocks.

The Iran war appears to be picking up, which is a problem. Oil has thus bar been unresponsive. We are starting to see index skews shift, with the call wing flattening and the put wing steepening. The plot below compares 9/18 skew week-over-week.

This chart is making the rounds on X, likely via GS. It shows “record low put/call skew”, and its very much related to the unusual vol dynamics we’ve discussed in recent days. “Level one” thinking is that traders are now gorging on call options, and selling puts. We think that was true… a month ago. We’ve shown several times how buyside traders are actually selling options in top stocks, which is providing dealers with positive gamma. Further, that positioning makes a lot of sense given the incredibly high call implied vols in those top single stocks into June.

If you look under the hood, what you see is that the leading AI call skews are coming in, while put skews are increasing (ex: DRAM space). The Mag 7’s, which comparatively lagged the big market rally, is seeing the opposite: the calls skews are relatively rich vs the last year, but so are the puts. What do we take from all this? Short puts is a dominant position, and that adds to positive gamma. This is a different from the “hot take” in the chart above, which is that call buyers are jamming skews. Ultimately this feels a bit like market in digestion of highs. The vol market remains out of sorts, with COR1M at our “risk off” alert levels. We add in the Iran situation, which impacts rates, but these dynamics face off against positive gamma support. Given this, we continue to enter cheap “spasm lottos” and will still look for a larger put allocation near OPEX next week.

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