Macro Theme:

 

 

Founder’s Note:

Futures are off 10bps, placing the SPX just below the key 6,000 strike (see y’day note).

Support today is at at 5,980 & 5,950. Resistance is 6,000 and 6,020. 6,000 remains the massive SPX support/pinning strike for today and is likely a key level into Friday.

TLDR: While there was a bit of weakness yesterday, IV shows very little risk, and we think the SPX continues to hold the 6k level. Other stocks/ETF’s that don’t have such large positive gamma should be relatively more volatile. Further, we characterize the weakness we’ve seen as traders looking to sell/monetize calls after a strong equity rally (vs more bearish “put buying”). We expect this equity consolidation to remain through this week, before eyes turn to NVDA earnings on 11/20.

Tomorrow’s CPI is the only data point this week with a “punch”, however the options market is assigning very little action to that print. You can see this in the term structure below, which has assigned a 14% IV for tomorrow expiration (CPI day has easily produced IV’s in the 20%’s). Further, when you look out past tomorrow, the term structure is very low & flat, with IV’s all near 11%. Simply put (pun intended): this market is pricing in very little risk going forward.

You can see this “little risk” view in many major single stocks, too. Generally these stocks have a mild put skew, meaning puts generally carry an IV premium to 25 calls.

Below is 1-month skew for AAPL (teal line) which shows a flat skew, vs a more typical put skew via 1-month options from 11/4 (gray line, pre-election/FOMC). This graph very well depicts how much more the put wing (yellow box) has compressed vs the call win (red) after last weeks events. This highlights that traders have been selling puts, and buying calls. Again, we see traders taking some off the table yesterday, and we think that may continue this week.

Turning now to small caps & IWM. IWM’s have had a euphoric +8% run since the election, which is more than 2x SPY & QQQ.

This has produced a Skew Rank >90 (out of 100). Skew measures 1-month 25 delta call IV vs 25 delta put IV, and so the Rank of 91 reveals that calls are now trading at a premium relative to puts that we’ve rarely seen over the past year (h/t Lauren from y’day’s Q&A).

In this case, the IV rank is low, too, which suggests that those looking to play some reversion may consider long puts are a viable option (pun intended).

Finally: TSLA.

Per last nights Q&A, we are looking for a contraction on TSLA stock price due to high IV into OPEX.

340 & 350 yesterday filled in as large strikes for this upcoming OPEX.

Today’s beta models show the GEX curve (black) has reduced a bit (vs y’day, yellow), with the minima shifting toward 400, indicating calls we’re rolled “up and out”. Comparing the current GEX vs (GEX – 11/15 OPEX, orange), you can see there is much less negative gamma, which indicates less calls being added, and, in turn, less dealer hedging pressure. That equates to less gamma fuel to drive volatility – and volatility has been being expressed to the upside.

If things we’re really bullish we’d see current GEX at a much more negative level, and because so much of the TSLA position is now in this weeks OPEX (lots of call decay), we are still comfortable with our “consolidation phase” view.