Macro Theme:

Key dates ahead:

Founder’s Note:

ES futures are +40 bps, NQ are +80bps off of huge NFLX earnings (+14.8% premarket).

Resistance: 6,075, 6,100

Support: 6,050, 6,020, 6,000

Note today is VIX expiration, and there can be a lot of wonky ES movement into & around the cash open. We also believe that VIX expiration may be aiding the vol crush & boosting the market – a topic we will touch on momentarily.

The AM futures rise has the SPX into our “heavy resistance” zone of 6,050-6,100 – an area we anticipated would resist into 1/29 FOMC. Thus far we have not seen a large buildup of positive gamma above, as signaled in the low-stability TRACE maps (22%). The low stability is driven by a lack of positive gamma. We continue to expect call sellers to step up into 6,100, which would provide positive gamma.

Possibly helping to add resistance is Captain Condor, which has served up a 12k contract 0DTE iron condor, struck at:

-6,075 x 6.080 call spread

-6,020 x 6,015 put spread

Our current belief if that this spread is dynamically hedged, or “defended” by the fund(s) that trade it, which may make these spread zones support & resistance.

While the VIX is now printing <15, the SPX realized moves remain elevated (1-month realized is 14%), which signals the spread between realized vol & implied vol is getting quite narrow.

Below is SPX term structure, which is quite flat and a signal of no near-term data points of importance (i.e. this week) & market complacency. Again, as VIX expiration is today we are wondering if the VIX/IV crush has been exacerbated due to today’s expiring VIX positions.

On this point we will be looking to hedge downside/enter into long volatility positions into FOMC, and may start to pick away at a few longer dated (avoiding weekend decay) puts today and into Friday as a hedge. Should the SPX breaks <6,000 we’d step up our short positions.

Finally in regards to NFLX – we covered this name in the sub Q&A, yesterday, with the view that the implied earnings move of 7% might be light. This view was driven by the breadth of gamma-positioning across a broad array of strikes. We generally believe that gamma hedging can sharply influence price through large gamma zones, and hedging flows reduce when gamma reduces in kind (<800 & >1,000 in the chart below).

In this case there is a huge post-earnings pop in NFLX, which stopped right at 1,000. 1,000 happens to be the last of the sizable NFLX strikes and an area we’d now consider resistance.