Macro Theme:

Key dates ahead:

Founder’s Note:

ES futures are off 35 bps, NQ -127bps. US 10Y has declined sharply to 5.09%.

Let’s recap yesterday’s moves: SPX: -111bps, NDX -200bps, RSP (equal weighted SPX)/DOW: -20bps.

Those moves were relatively sharp compared to the very low levels of volatility seen in recent weeks. It had also been 53 sessions without a 1% down move in the SPX. For fintwit, though, it was treated like the apocalypse. It was certainly uncomfortable to be heavy in tech, vs a “nothing day” in DIA.

At the start of yesterday’s note, we wrote about how the ultra-low implied volatility in short dated options could create a big move. That is important to reiterate here, because the sudden magnitude of yesterday’s move should not have come as a massive surprise given those dynamics (short 0DTE gamma with no risk premium having to cover). What happens next is critical, as the SPX is indicated to open just above the Risk Pivot.

Our Risk Pivot has been 7,690 since late December, and that level is now being put to the test. We’ve generally expect the Risk Pivot to hold, but if it breaks we will look to express short positions, with an eye on 7,600 support. If 7,600 gives way, we look for a final wash-out move to 7,450. 7,450 is our key level as that is where negative gamma troughs based on the SGOI positioning.

On TRACE you can see that there is some 0DTE positive gamma into 7,600 – but those positions are transient. If you look forward you can see that <7,700 is negative gamma through to next week. If today is a strong down day, we also note that with OPEX tomorrow, the potentially for some bearish positions to roll off an bring relief into early next week.

Core to identifying sentiment here at the Risk Pivotis vol. Fixed strike vols from Tuesday night to this AM are indeed higher, but only by a bit. Essentially what you’d expect to see with a ~1% down day. If we see fixed strike vols increase on the open, it will be a signal that downside pressure is building. Additionally, we will be watching the S&P500 equities HIRO as a signal for index price action. If traders are still building bearish positions in top tech names, it will likely lead to a break of the 7,690 Risk Pivot

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