Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are up 60bps after Fridays OPEX.

Fresh call selling into OPEX has added positive SPX gamma into the 7,500s. This projects that positive gamma now reigns down into 7,400. This implies that the “buy the dip, sell the rip” behavior that was so prevalent in the S&P500 may persist. Additionally, there were some tech developments over the weekend that inspired the compute-demand story (kimi out of compute). This helps give lift to the memory/semi names that were so beat up the last few weeks. This gives the appearance of SPX being a tough short at this juncture.

Eyes are now going to turn squarely to earnings, which could also re-energize the AI trade (or break it back down). Note that earnings are skewed the ultra-low COR1M readings we’ve been complaining about, too (they raise single stock IVs). GOOGL/TSLA/INTC have the chance to set the mood into August.

The passing of earnings may alleviate the correlation conditions that had us calling for a correction. This has been a bizarre periods for markets. On one hand, the memory/chip sectors have been hit hard the last 2 weeks, which brought the Nasdaq down ~6%. Over that same period, the SPX is flat. That is not much of a highly-correlated risk-off move.

Massive earnings upside would potentially keep the volatility dispersion that we’ve seen too. On that topic the NDX vs SPX drawdown has done little to resync volatilities. A clean example of this is the VXN (Nasdaq VIX) – VIX, which shows a massive spread.

Ultimately, if the SPX is back >7,480 Risk

Pivot,

then we do not want to hold a large core short position.

The volatility risk premium on some of these memory/chip names is also interesting. You can see these sectors are showing +90th IV Rank – this during a period of extreme volatility. You may not want to short vol in these names, but it does feel like trying to short the underlying price and/or buy options is prohibitively expensive. This may offer some relief.

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