Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are sharply lower today, – 3.5%, after tariffs were higher than expected.

We think the easiest trade(s) here may be to wait for one of two long stock/short vol signals:

1) A break >5,525, which invokes negative gamma above and a likely vol crush.

2) A test of 5,400, which shows clusters of positive gamma support.

Additionally we see positive gamma around 5,500, which is providing some immediate overhead resistance. Watching how

HIRO

responds on the open will be critical, as sustained positive

HIRO

signals suggests we move back above the 5,500 positive gamma, which may unlock those negative gamma flows above 5,525.

To the contrary, if

HIRO

is negative then it tilts things to the downside. From 5,480 – 5,400 we see a very neutral gamma zone, but negative

HIRO

delta along with likely higher vol/vanna flows can be the suppressive firepower to bring a test of 5,400.

Looking at the QQQ in the new Synthetic OI “SGOI” model, we see very little in the way of positioning <460 (QQQ 458 premarket). This infers that QQQ downside may be exhausted as dealers don’t have downside pressure. This is not a buy signal in QQQ as much as supportive documentation that a SPX 5,400 test could be an interim bottom. QQQ is ultimately likely to be wagged by SPX flows.

Finally, turning to vol. Fixed strike SPX vol is 1-2 vol points higher. That is significant, but not as much as one would expect given the 3.5% ES decline. With that, we see more vol premium to pump if equities do go lower, which lines up with the idea of VIX into 30 with SPX tagging 5,400. If VIX is at 30 it is, at a high level, a signal that vol premium is quite high, which can bring out vol sellers. That, along with the SPX positive gamma at 5,400, agrees with a possible 5,400 bottom.

Digging into the single stock space may be warranted here, as you can find relatively cheap or rich plays as ways to express SPX (i.e. “macro equity” movement). Names like NVDA, ADBE, AVGO, etc (bottom left). show cheaper relative vol, and so buying call spreads or put spreads may cost relatively less than SPY options. Conversely, there is relatively high IV in names like GOOGL, UAL, AMZN, (top left) which could be short put spread targets to consider if the SPX tags 5,400.

We will discuss this further on the 1PM ET Q&A.

*Hint: several of these names, like SPOT, NFLX, have upcoming earnings which keeps their high IV in tact. These stocks have a red “E” next to their ticker in the watchlist (to the right of the Compass).