Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are up 15bps, but they did trade lower from 6,035 to 5,990 overnight before recovering/reverting to 6,015 (SPY600).

TLDR: Key levels are unchanged from recent days: the

pivot

is 6,000 – and we remain bullish while the SPX is above that level. First support is 5,975, then 5,900. Resistance is at 6,050. We continue to look for volatility to remain subdued today, with mean reversion plays back into the 6,000-6,025 area. This 6,000-6,025 “box” likely shifts tomorrow after CPI.

In last nights notes we flagged implied vol which crept higher during yesterday’s flat session. We see that vol remains elevated overnight, with no major news on the docket for today. This is happening in the face of a realized vol collapse, wherein 5-day SPX realized is 8%, and 1-month is 15%. For today we don’t think these dynamics matter as 0DTE players are likely to come out and sell 0DTE options which supplies positive gamma to dealers. For tomorrow, and CPI, if the CPI is good vol is sold. If its bad, we may well visit 5,900 in short order.

Away from the seemingly dull index flows, we are eyeing breakouts in SLV & BTC – both of which are at major highs. Calls skews are warming up there, a signal that things are “getting squeezy”. We consider these to be speculative setups & therefore play them with calls/call spreads for defined risk/reward. Below is the change in 1-month skew for SLV from last week (gray) vs today (teal), and you can see that the call skew is bid. Some may think “time to sell calls”, but the IV rank remains rather subdued (45%) and we think the risk here is that this could ignite higher as the crowd comes in – remember GLD hit +90% IV rank during its highs a few weeks ago. In complete transparency we were flagging IBIT/BTC in a similar situation last week, but BTC did then consolidate from this similar position – but it is now back at those highs.

Finally – in last nights webinar we talked about the upcoming transition period with a HUGE June OPEX on the 20th, which falls just after VIX Exp & FOMC on 6/18. These expirations fall just as SPX realized vol is getting squeezed to the floor (5-day is 8%), and the SPX is nearing all time highs. As per usual, when we get a strongly trending market into expirations we look for markets to mean revert after expiration as the flow dynamics shift – and this case is generally no different – except this time we have the very large 5,905 JPM call that expires at the end of June (6/30). That could be a support buffer/target for SPX prices post-OPEX. Given that the scenario could be something like: CPI is benign, SPX rallies to 6,100 into next week, and then contracts to 5,900 by 6/30. If CPI is hot, that 5,900 level could come into play this week, which is why we will be looking to head into tomorrows print with a low risk/high reward “lotto” put spread/put fly in the 5,900 area – and we will couple that will 1-2 DTE 6,100 call spreads/flies.