Macro Theme:

Key dates ahead:

Founder’s Note:

ES futures are up 50bps, NQ +130bps. US 10 year flat at 5.1, with WTI off 1% to $99.

The big weekend discussion in the options space was about the major move in VIX on Friday, which was surprising given the relatively calm 1% decline in the index itself. The TLDR on this is that there was over 100k of very short dated Oct 21 VIX positioned near the 20 strike into that VIX move, and over 1mm VIX calls for Oct 21 exp traded on the day. That speaks to a ton of VIX “gamma” which likely created that springy VIX move. We break it down in a video here.

The key thing is that VXN had a much smaller relative move – suggesting that what happened to the VIX was not a symptom of the larger vol complex. This matters because if the vol complex starts to jump, then its a major signal that equities are on the cusp of a large, broad selloff. The biggest position net changes in VIX were for short dated puts, too.

Clearly if you are in tech you are already in the throes of big selling: QQQ -6.5% since 10/6, but SPY only off 2% during that same period.

What bears need here is equity correlation. We posit that unless the S&P, DIA, RSP, etc start to sell with the same conviction as tech, then the selling is unlikely to continue. Thus far equity correlation has been muted, with COR1M near 10. There are rumors around today of an Iran de-esclation plan (good luck), and we obviously have huge earnings this week with SPCX tomorrow and META/TSLA Wed. This data coming in plays directly to FOMC and elections at the end of the month. This signifies plenty of incoming data to back narratives.

Our bottom line: If the SPX can regain the Risk Pivot at 7,690, then traders have to start watching for a snappy right tail move. For playing upside and a quick recovery bounce (and if/when SPX >7,700), we will look to play short dated 1-2 DTE SPX >=7,800 call flies.

For today, our concern is that there is not a lot of support from current indicated SPX levels (7,700) down to 7,600. We will want to see positive HIRO values, a recovery of 7,700, with vol coming down in order to trust this opening bounce. The bigger picture is that if COR1M starts to creep higher with SPX <7,700, then we want to start positioning for a broader selloff, with a possible wash out into the 7,450 area. If you are already long of stocks, then this bounce may be a decent opportunity add a few Nov put spreads.

The other hot topic is that CRWV & ORCL CDS has recently surged. While that may be a credible threat to equity markets, we note pretty calm positioning in both of those names.

For CRWV there were more net calls added, likely hedging a bounce. There were also some fairly large puts bought, too, notably at the 35 strike (right side) for 2028. This does read like some real crash protection.

For ORCL, we saw both puts and calls on net reduce. If there were major issues we’d look for put protection to surge – that is not yet the case.

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