Macro Theme:

Short Term Resistance: 4,500

Short Term Support: 4,450

Risk Pivot Level: 4,500

Major Range High/Resistance: 4,600 SPX Call Wall

Major Range Low/Support: 4,400

‣ The first week of Sep (post Labor Day holiday) is likely lead to lower Index IV’s which supports stocks into 9/11.*

‣ Entering into the week of 9/11, there are a litany of catalysts including: CPI (13th), big Sep OPEX (15th), VIX Exp & FOMC (20th). *

‣ While we have no particular reason to be bearish, we note that a strong rally into OPEX/VIX Exp would certainly clear up the downside “padding” that we’ve been enjoying (and discussing) over the last few weeks. This could make downside into end of September/October “more available”. Traders looking to hedge may want to therefore consider put positions before the 13th.*

*updated 9/5

Founder’s Note:

Futures are 30bps lower to 4,457. Support for today is at 4,450, 4,442, 4,425 & 4,400. Resistance above shows at 4,500. Our one day implied move has increased slightly to 0.72% (open to close range).

For QQQ, support is at 370, with resistance above at 374 – 375, then 377.

Last weeks JOLTS jolt has now been erased after the S&P has shed ~1.5% over the last week. The gamma remains meaningful while the S&P is >=4,400, which should continue to suppress volatility via mean reversion. Yesterday was a classic example of that mean reversion, wherein the S&P seemed poised for a precipitous drop heading into the early afternoon, only to stage an afternoon rally to close just within the estimated 1 day move of 0.68%. In a more negative gamma environment (or one with a larger SG Implied Move), that afternoon recovery/mean reversion may be less likely to appear.

While the S&P is giving some back and the VIX has perked up into the 14’s, the options market predicts little volatility pre-CPI. To this point, today’s ATM straddle (ref 4,455) is $20 with an IV of 17%. IV’s perk up for expirations >= both CPI & FOMC, as you can see below, which has created a “right angle” contango. These IV’s sync with what is likely most macro traders frameworks: ‘the next few days really don’t matter, we’ll update our models after CPI and the FOMC.”

This is the options market agreeing with SG forecasts that volatility should remain relatively low over the next several days.

Further, one should be cautious taking a strong directional bet now (i.e getting too “beared-up” pre-CPI/FOMC), as you have to be on watch for a bear-trap in addition to a slide in equity prices. If the CPI and FOMC are dovish/equity positive, the macro reaction combined with options flows could help drive equities meaningfully higher into month-end (ex: a JOLTS-like reaction into 4,600). The move being fueled by the removal of gamma at OPEX, a decline in CPI/FOMC event-vol and the pull of large quarter end OTM options positions.

This is why we yesterday suggested looking at some longer dated puts vs shorter dated end of Sep call structures (spreads, flies, etc) – essentially positioning “long volatility”.

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