Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are flat, with no major data on tap for today.

The big SPX gamma for today is held by Firms, as you can see with TRACE. There are, or were, +10k contracts around the 7,800 strike which have been being closed up this morning. We also see a large chunk of them expiring at 9:30AM EST, which suggests they are some type of flex option. We are looking for another “drift up” day, with support in the 7,800-7,790 area. Upside may be driven by traders continuing to lean on vol. We’ve also now shifted the Risk Pivot to 7,775 from 7,680.

For market makers, if you zoom out from today and into next week you find nothing but negative gamma across all strikes. This speaks to the ability for volatility to move more than anticipated. Remember – vol works both ways, and so we are watching leaky upside just as much as a sharp downside move, and the map does suggest 7,900-8k are achievable.

We are not looking for a downside move until possibly Wed AM and VIX expiration. That being said, we are long some cheap longer dated puts as per our recent notes. Ultimately a break of the Risk Pivot (7,775) will lead us to press shorts.

Vol for pre-NVDA/FOMC has gotten very cheap, and so we cannot fault customers for not selling SPX strikes. We suspect that there are still traders out there trying to sell vol as its dropping sharply.

Here is QQQ IV (red) vs RV (realized vol, blue), and you can see that implied is tanking relative to realized. This IV<RV is pretty rare as you can see over the past 1.5 years. You may also note that QQQ IV is nearly back to lows – we suspect it will match lows into next weeks expirations.

As we move to OPEX we often look for vol to revert higher, and for extended upside price action to correct. The hitch here is that right after OPEX is NVDA + JHOLE, which are heavily hedged events.

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