Macro Theme:

¿Key dates ahead:

Founder’s Note:

Futures are up 10 bps.

The 7,700s area negative SPX gamma has now transitioned to positive gamma with the customer selling of calls into and around 7,800. This is probably not much of a matter for today, as it lacks data, but is a development to watch with tomorrows CPI. For today it is hard to expect much more than the 7,700-7,775 range from the last few sessions.

A few weeks ago we made the argument that stocks were starting to shift from a focus around AI to a focus around macro. If you recall through April/May it was incredible AI-related earnings that allowed traders to gloss over the Iran situation.

Now, as earnings season has passed, we’ve seen single stock IVs start to come down, just has index vol has started to plane out. This is starting to mean-revert extreme signals like dispersion (DSPX) lower and correlation (COR1M, below) higher. We read this as a signal that traders are unable to be as inspired by the AI narrative, and are starting to focus more on the macro/rate picture as rates threaten to break higher. Additionally, its clear that investors upside is being monetized/diluted as companies issue stock and/or debt (GOOGL, META, SPCX, INTC, etc).

This is not to say that traders are hedging out macro concerns – they aren’t as you can see by the “lower right” position of nearly all top stocks. The lower right says that call skews and low IV dominate. One week ago we highlighted in the Note how dispersed stocks were across the Compass (image here). The clustering of skew/IV speaks to lower dispersion and higher correlation. We think this all matters because while the single stock narratives have not inspired much movement – its been the phantom of Iran deals that popped stocks – and now we turn to the last key inflation data before Jackson Hole in a few weeks.

The strong market rally over the last week was triggered by alleged Iran deals. However, rates remain at highs into key CPI/PPI data, and Jackson Hole in a few weeks. Into these key prints we note that 1-month 25 delta SPY puts are showing their lowest IV of the year. You combine this will still low COR1M, and the lack of put hedging in single stocks, and you come away with a conclusion that adding some small lot puts with IV at 14% makes sense.

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