Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are -30bps ahead of the 3-day weekend. Things were quiet until Trump threatened tariffs on AAPL – when that happened ES lost 20 handles in seconds. Liquidity holes.

No major data is on top for today – and we think traders will still default to wanting to be short vol over the long weekend which should be supportive of stocks – this idea is a bit less strong now given the Trump tweets which sent ES to 10-day lows.

The SPX levels for today look exactly like yesterday: 5,900 area resistance and no major support until 5,775. The 0DTE straddle is also near the same price: $38/65bps. This underpricing of vol (in our opinion) presents risk in an of itself – if the market does not have major support/resistance for 50-60 handles and the SPX thinks the max move is 40, it could lead to a vol short cover which adds some market momentum.

We noted that straddle felt to cheap yesterday, and the SPX rallied to +65bps (the 0DTE straddle price) to intraday highs of 5,877 before collapsing 35 handles in 30 minutes. That ultimately left the SPX exactly unchanged on the day. Two things on this: we don’t think its ironic the market

pivot

ed at the 0DTE straddle price – that seems to happen often – and 2) losing 35 handles in a heartbeat reiterates the liquidity issue (just like this AM futures drop).

One thing catching our eye is the cooling of call skews, as seen in Compass. In early April we went from very heavy put skews & high IV’s, to low IV’s and high call skews – and now call skews have flattened for many top names. This call skew has come off just from stocks going into OPEX at 3 month highs – and quite frankly many of them are just a whisker away from those highs. This should be welcome news for bulls, as it suggests that re-entering upside exposure is cheaper now vs last week. It does suggest that traders are now less aggressively long, which syncs with the general upside stall-out that came earlier this week.

Much of the world is focused on next weeks NVDA earnings which is Wed night. The SPX term structure does seem to have a bit of a kink to it related to the earnings, with ultra low 12% implied vols marked for Tuesday. We will continue to believe these vols are too cheap – be it the pre-NVDA marks or post. This does not mean we want to carry a full short position – but we do want to carry some downside protection. Quite frankly, that downside protection does not have much carry cost (in our opinion), and the cheaper equity calls give better fixed risk ways of playing upside for those that remain bullish. For us – we want to see the SPX regain 5,900 before flipping to a bullish stance.

Last thing – bitcoin. We’ve been tracking the IBIT vols for a few months now, and as bitcoin is breaking to new ATH’s we see the IV rank start to lift. We think this is a bullish construct, as we think that short term highs will come when BTC/IBIT goes “stock up, vol up” resulting in a high IV rank and high call/risk reversal rank. We started to see some of that crypto FOMO percolate yesterday, with many speculative stocks like “Cantor Crypto Ventures” (CEP) rising +10%.

For playing IBIT we like >=1-month call spreads (as per Tuesday), which help to isolate the high call skew cost, but still gets exposure at relative low IV levels.