Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are up +40bps ahead of today’s OPEX. No other major data is on tap.

The TLDR here is that OPEX should start to free up volatility, and you can make the argument that VIX expiration has started to release more volatility. From Friday’s close to today the SPX is -2%. With OPEX in the mix today, and the fact that he big signals are due next week, we think that one shouldn’t read too much into the recent SPX weakness.

For OPEX we see a fairly average monthly expiration for the S&P500 with lighter anticipated impact. Single stocks are of decent size leading to some idiosyncratic impacts for the top options names: Mag 7s + MU/SNDK/TSM.

A few months ago, we were essentially all oil traders. That trade pivoted to AI in April through July – and now the focus is primarily on rates. Bessent has had several key quotes the last 2 days about supporting the long end – this as long duration rates test multi-decade highs. As we all keep an eye on this complex, traders will obviously get significant updates with PCE & JHOLE next week. This matters now because as Nomura notes, there are clearly some rate levels in play that are drawing reactions from the administration.

Over the last two sessions there have been treasury-buying messages from Trump/Bessent, which have sparked a quick equity pop, but then a strong fade. This seemed to put the tape into “sell mode”, with the SPX closing just below the updated 7,650 Risk Pivot.

Futures have pushed the SPX back above that level this AM, but its clear we all need to respect the macro action. While the equity market did seem to fade that news, it is of note the administration is trying to get involved with risks.

Even though the equity market is failing to catch a bid, its clear that traders have no fear. Instead, they are leaning into calls. Here is IV Rank (X) vs Skew Rank (Y) and you see we are currently in the upper left (orange dot). That is a “feelin’ good” position. Each digit represents a log of the past ~2 years and so you can see we are not all that unusually positioned for skew vs IV – but its indeed a bullish stance.

Other rate-sensitive assets started to move more sharply on the Bessent comments – specifically BTC and GLD as mentioned yesterday. Below you can see that there is a light but positive correlation between gold and SPY, and one could argue that maybe SPY is underperforming gold here the last few days based on this correlation. The reason for bringing this up is that when you have the bullish call stance in SPY, and GLD moving back higher, one one think equities could add more of a bid. With OPEX in the mix today, and the fact that he big signals are due next week, we think that one shouldn’t read too much into the recent SPX weakness.

If you look at the SPX gamma map over the next week we see light but positive gamma down below, which is not a recipe for sharp downside. Correlation and dispersion have also reset some, which changed the volatility risk a bit. Given this, we don’t see the impetus to hold a strong short position, and we may look to buy some >=7700 strike call flies for next week, betting on some equity mean reversion into Wednesday.

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