Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are +40bps, testing all time highs. Oil is off 2.5%, pushing crude <$90, to $87. That is helping ease rates, albeit mildy: 10Y 5.27%.

SPX gamma gets quick thick above 7,800 (darkest purple), which implies a slowing of the rate of upside change. Resistance for today is at 7,820 then 7,850. Support is 7,800 & 7,775.

While everyone is watching higher rates, and wondering why stocks are higher despite record yields, traders themselves are betting on lower yields and higher stock prices. You can see this via the bond ETF’s, with TLT, IEF, LQD all in the top right quadrant which is “high vol, high call skew” – a bet on lower yields ahead. We also see IWM/QQQ/SPY sporting heavy call skews (bottom right). This syncs with the market behavior of late: any excuse to pop stocks higher is exploited – this is evidenced by realized vol being more expressive to the upside.

You see this bid in the single stock complex, too. The plot here is a blend of Call IV’s for S&P500 stocks, and you can see it is surging higher. While many single stock IVs are increased due to upcoming earnings, but what we are noting here is a lift in call skews which ties back into upside expectations. The underlying point is this: despite higher yields, stocks are sliding higher. If those yields come down, then we may see strong moves higher in stocks. Given this, we think its critical to maintain upside exposure, and for that we prefer NVDA Nov or Dec calls as the IV Rank for NVDA is <5.

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