Macro Theme:

 

Short Term Resistance: 4,500

Short Term Support: 4,425

Risk Pivot Level: 4,400

Major Range High/Resistance: 4,600 – 4,615 (SPY 460/SPX 4,600 Call Wall(s))

Major Range Low/Support: 4,300

‣ IV Ranking suggests many significant single stocks have their lowest IV’s in months, which may be an effective way to play directional movement out of 8/16 – 8/18 expiration**

‣ Current positioning suggests 4,400 would be a major interim low, with traders likely taking a directional cue from Jackson Hole on 8/24-8/26*

‣ We look for a strong directional move out of Jackson Hole on 8/24-8/26*

‣ <4,300 would be a significant “risk off” as dealer negative gamma increases*

*updated 8/21

**updated 8/16

 

Founder’s Note:

ES futures have recovered to 4,415. 4,400 remains the major

pivot

level, with resistance above at 4,410 then 4,450. Support below is at 4,375. Our estimated move remains unchanged at 0.79%.

 

In QQQ 365 is our

pivot,

with support at 360.

 

We continue to favor playing mean reversion back into the 4,400 level for today.

Little has changed over the past few sessions as traders await NVDA earnings tonight, and Jackson Hole on Friday. While there is a cloudy macro/rate picture, traders are hoping NVDA will re-ignite the AI/tech leadership.

This is an interesting inflection point, as from an IV perspective things are very much neutral. Below is the QQQ Risk Reversal (purple, 1 month 25 delta call – 25 delta put). As you can see the metric has returned back to its ’22 baseline, suggesting that traders are no longer leaning into long calls as they were into June. Conversely, there isn’t a particularly strong bid into puts, either.

One has to assume that between the NVDA guidance and Powell, traders will pick a side, which feeds into a large Sep OPEX. This side not only applies to equities directionally, but also to IV’s which hold a slight premium due to JHOLE, but are not trading significantly above realized. You could make the argument that IV’s are not particularly cheap to 9.5% 1 month realized, but that realized volatility could easily break higher, making current IV levels attractive. A strong price & vol shift out of Jackonson Hole and Labor Day may start to strengthen Sep OPEX calls and/or puts, which creates reflexive hedging flows which may play into mid Sep.

Shifting to this afternoons main event: NVDA earnings.

We’re a bit surprised with the level of call skew (white), particularly over that of last quarters earnings (red). The options implied move is 9.1%, and we note the IV Rank is nearly 100% (highest IV over the past year). The previous two quarters traders were looking for a 7% implied move, and were delivered +16% & +24% earnings moves in the stock. That recent performance is likely playing into these very elevated call IV’s, as traders seem to be particularly worried about a blowout rip higher.

Adding to this, on yesterday’s open NVDA touched intraday record highs of $481, before retreating 5% to close at $456. VIA

HIRO

we can see that those opening highs where met with heavy call selling (orange = all exp, green = 0DTE) and put buying (navy blue = all exp, light blue = 0DTE) until the stock worked back to the previous days highs around $460

 

.

For those looking to position into this event, our levels show that the $400

Put Wall

and huge $500

Call Wall

are the levels you may want to lean against. Further, our opinion here is that implieds are so very elevated it would likely take a major blowout report for long options, particularly OTM calls, to pay off.

 

With this in mind, we favor trades which are short vega here, like reverse calendars.