Macro Theme:

Key dates ahead:

Founder’s Note:

ES futures -20bps NQ -75 bps.

TSM -5% after earnings.

The positive gamma SPX regime remains in tact as long as the SPX holds the 7,500-7,600 area. This is producing dips that continue to be bought – just as we saw yesterday with the sharp move from 7,575 to 7,525… and back to 7,525 at the close. You can see in the plot below that the slope of positive gamma deteriorates sharply <7,480 which is why our Risk Pivot is at that level. Shorting this market, despite the memory sector pummeling, has been futile. If 7,480 breaks, then we think flows induce a sharp move lower. To the upside, the market currently seems capped at 7,600-7,620 into Fridays OPEX.

KOSPI, which led the “memory move” higher is off 6%. As you can see below, KOSPI (blue) and the Q’s (red) rallied in sync through June, with KOSPI now correcting in a major way. DRAM (memory ETF) and SMH (semis) are moving lower in sync, but the Nasdaq is still holding on. DRAM is -30% in ~2 weeks, with SMH -15%. Nasdaq is only off ~5% during that same period, with SPX actual up by ~3%. Upside in S&P is let by Mags +8% and XLF +5%. Dispersion.

Over the past week, NDX vol has been coming in, too. Its the dying of the “stock up, vol up regime”. Below is 1-month skew from last week (gray) vs today (teal). SPX vols remain at relative lows, as its clear that selling in the AI-components is being balanced by buying in “other stuff”. This signals that despite the weakness, no one wants to buy puts. Who are we to argue until/unless SPX < 7,480.

In regards to the AI hardware trade, the skews have shifted from call-heavy to put heavy. Given this, we like the idea of put 1x2s out in time (>2 months). These can be structured short/flat delta and short vega, which could profit if vol starts to come in. You can also structure these in such a way that they PNL is stable if downside continues (shift the structure farther down and/or widen strikes).

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