Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are off 30bps, with no major data points on the docket for today.

Support: 6,050, 6,045, 6,010, 6,000

Resistance: 6,060, 6,100, 6,110

Is the options market worried about this 30bps drawdown? Well, no. The 0DTE straddle is an incredibly low $20, or 33bps!!! (ref 6,055, IV 13.2%).

As a first order, this low IV signals we do not want to be short volatility, particularly 0DTE (read about why this matters here). This very low IV is a signal that SPX could get a bit jumpy (i.e. we move more than you’d expect) today/tomorrow, but we are overall looking to buy dips under 6,050, and sell rips over 6,050 (into 12/18).

On this point, we see that there is some 0DTE-based negative gamma from 6,050 down through 6,020 (+35% Stability Reading). Given the low straddle price, and this negative gamma, we wouldn’t be surprised to see the SPX hit a quick slip-stream down into the 6,010 (SPY 600) – 6,000 level.

Zooming out, the below chart reflects the key levels we have been operating from for the last week, and what is set to guide us into Thursday FOMC. Assuming FOMC is benign, we’d expect 6,055 to be the pin into 12/31 OPEX.

If the SPX breaks >6,100 out of FOMC, then we would target the

Call Wall

into 12/31 – however the

Call Wall

has been stuck at 6,100 for the last week.

If the SPX breaks <6,000 then we’d shift to “risk off”, and look for a jump in IV. On this note, we have been buying small downside hedges for Jan & Feb OPEX, taking advantage of relatively low IV’s (more on this below).

We first want to highlight the breakdown in correlation, as we see IWM/DIA & RSP (equal weight SPX) have been down nearly every day in December, while SPX has pinned, and QQQ’s have ripped. Certainly we gave the Mag 7 (ex NVDA) as the bulls powerhouse, and excessive froth on the fringes (ex: crypto, TSLA, “quantum computing”).

In regards to buying put protection, we see that IV’s are up from recent lows, but puts are still objectively cheap. For example, you can but a 1-month 25 delta put for 12% IV. Not too shabby. Should FOMC fail to spark any downside, you do have to carry that put through a week of holidays (i.e. rest of Dec), which would indeed be a bleed. However, the weakness in non-tech, excessive sentiment, possibility for FOMC to signal a pause, etc…these are all reasons to “but some protection when you can (& cheap), not when you have to”.