Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are +25 bps higher, with NFP on deck at 8:30AM EST.

We have a curious position in the SPX gamma – one that has been in place for a few sessions. Positive gamma is below, due to short puts, arguably acting as a support buffer into the 7,600s. Above is negative gamma into 7,800s. This infers we are open to a sneaky rally up to 7,800, which a clear NFP may start to invoke. Eyes are also on CPI/PPI next week.

I suspect this negative gamma upside is an artifact of the massive rally earlier this week, which slapped the hand of anyone trying to short calls. In turn, should we start to rally into 7,800 I would look for short calls to come in which would great positive dealer gamma (as per what tends to happen – traders sell calls into rallies).

While there has been negative gamma above for a few days, the index action has been much more subdued vs previous sessions. With that, vol is coming down….kind of.

After this weeks “SPX up, VIX up”, VIX has now turned back to post-Iran lows. This is misleading.

Fixed strike vol is higher, no matter how we slice it. This is Sep skew from Monday (gray) vs today (teal) and you can see the entire curve is higher – except for the extreme right tail. Higher vol, even though the Iran situation is allegedly near a deal? This suggests the market is waiting on something else – and the best guess is NFP today, CPI/PPI tomorrow which will likely persuade traders rate forecasts for the next month. If that data is benign, and Iran stays quiet, then this vol may crush which ships SPX back to intraday all time highs near 7,800. Conversely, if the trader focus shifts to higher rates then the dealer long gamma below could we washed over by “vega” if the SPX breaks <Risk

Pivot

(7,680).

Remember – COR1M is informing us that vols remain in a “spasmy” spot which is what would source that “downside vega”.

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