Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are +60bps after the State of the Union, and ahead of 8:30AM ET econ data.

TLDR: Watch your tail! We reiterate yesterday’s capitulatory angst (under Macro Theme). These elevated vols are too warm to buy, but not an “obvious” sell as vol can get very jumpy from this point.

We start today with “the Captain”, who took a heartbreaking partial loss yesterday, resulting in a new, larger position today. This ~15k 0DTE SPX condor is at:

call spread: 5,840 x 5,845

put spread: 5,705 x 5,700

We often feel like too much attention is paid to this position, but our research suggests >=10k size “matters” (as noted y’day). And, the market absolutely tagged the Captain’s 5,780×5,775 put spread last night (SPX close 5,778) after the dramatic 80-handle plunge.

Was this put spread the reason for that massive ~80 handle decline? We highly doubt that. But, are these spreads massive price targets, particularly into the close? We firmly believe that.

Turning to the bigger picture, last nights note did a great job of framing the price action – the type of price action we’ve seen many times over the past week (including that of last Friday, featured in the Sunday Note).

That is:

1) Low TRACE Stability readings implying big moves are in the wings

2) TRACE delta map informing of “if/then” price action (in this case dealers need to buy into strength, sell into weakness)

3) Massive

HIRO

delta’s forcing price direction into the “if/then” zones (y’day saw $8bn of

HIRO

S&P500 deltas into the 3pm highs)

Below is today’s TRACE map, which we’ll be using as our price guide for today.

Taking another zoom out, we wanted to touch on vols.

In yesterday’s AM note our topic was focused around “nearing the moment of capitulation”, as the VIX was nearing a break out. Just after the open, the VIX broke 26 which was its highest level since ~Aug 5th.

Near these VIX highs/market lows at 11:30AM, we saw a ver large 6k deep (+$200mm in delta) NVDA put seller step up (4/17 135 puts), which coincided with market lows and seemed to trigger that massive wave of long SPX/equity deltas/

HIRO.

However, last nights violent equity reversal re-spiked vol/VIX, essentially placing us back where we yesterday AM (i.e. VIX 23).

This is a tricky place because vols are pretty high/puts pretty expensive, which makes them a tough buy. Additionally, there seems to be a rich enough vol premium to bring out the sellers, as we saw yesterday late-AM. However, as 3PM to the close proved, vol can mean revert higher in a very nasty way.

This highlights a key central point: that vol is unlikely to clear until an actual macro event takes place: tariff deals signed, Powell giving some material “a-ok”, etc. This uncertainty is likely to force traders to maintain actual hedges (i.e. longer dated puts/VIX calls), and not simply play around with 0DTE positions. This dynamic anchors higher relative levels of implied vols, making rallies like yesterday (and Friday) fleeting/unstable.

A visual on this idea would be to look at term structure, which as ATM IV’s out past next week at ~20%, while very short dated IV’s are +30%. That “front end” is likely going to ebb & flow quite a bit, as short dated traders flood in and out.