Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are up 30 bps ahead of FOMC, which presses the SPX squarely back into the key 6,060-6,100 range.

Resistance: 6,100, 6,110

Support: 6,050, 6,040, 6,010, 6,000

VIX expiration is this morning, and when we see a bit of a strange bid to equity futures (purple) ahead of FOMC, and VIX (candles) trending lower (ahead of FOMC) we can’t help but acknowledge the potential impact of those VIX positions expiring on the cash open (9:30 AM ET). As such, be aware of some odd futures movements into/around that time. Overall we don’t think this VIX expiration is that meaningful due to massive positions expiring Friday.

For FOMC a rate cut seems locked in, but there is uncertainty around forward guidance. This uncertainty presents some opportunity for volatility, but that volatility comes up against a giant-sized OPEX position which is built to keep SPX feeding back into the 6,050-6,100 range.

30-50% of total SPX gamma expires on Friday, which serves to weaken this pin, but the pin is not full removed until/unless:

1. The 6,055 call positions tied to the JPM collar expires on 12/31
2. We break >6,100 or <6,000 by Monday, which could push us out of the “pinning power” of the JPM collar gamma

We realize you are all tired of hearing about the 6,055 JPM position, but it is really huge and isn’t going anywhere before 12/31.

For today, how do big boundaries of 6,100 & 6,000 line up with a 0DTE straddle?

The 0DTE straddle is is being priced at a tepid 56bps (30 handles, IV 21%). +30 handles from current indicated SPX open of 6,065 brings us to ~6,100.

If Powell is able to spark bearishness, then we think 6,000 is major support into Friday’s OPEX. 6k is obviously ~1% from current cash levels, suggesting that a sizable vol pop could easily come with a hawkish Fed….That vol pop & a break <6k is our risk-off signal.

On the topic of “risk off” we have to say – this is a strange market. Yesterday we talked about the weak RSP/DOW/IWM/Value vs strong QQQ’s, and last night we saw this note from Nomura which shows this is the 2nd longest streak of negative breadth in the last ~30 years – and the only time in such a streak that the SPX was positive. If you look at why the SPX is positive its essentially due to 5 stocks: TSLA, AVGO & Mag7 (ex-NVDA).

If you don’t own those top tech names, then things don’t feel so good:

The point here is either those non-tech names need to catch a bid to Mag 7 all-time-highs, or those Mag 7’s need to correct. When we look at skew ranks in Mag 7, we see many of them with >=90% skew ranks suggesting calls are quite rich relative to puts.

Our concern here is the big supportive S&P500 gamma is going to complete erode some time between now and 12/31, which would remove key support for the S&P500, and could zap some of those bullish call positions in top tech names. Therefore if SPX breaks <6,000 we will be shifting to a risk-off stance.