Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are flat ahead of today’s OPEX, which is slated to be the largest expiration ever. Futures were about 40 handles lower overnight, which suggests the SPX was probing the ~5,925 area. We mention this as we still watch 5,900 as a major support/target zone into next week, and 6/30 expiration.

For today, 6,000 SPX is certainly the biggest OPEX strike, with ~500k total OI expiring. That is the major overhead level for today with 5,950 & 5,900 the big downside strikes.

In terms of OPEX size, the delta of calls heavily outweighs that of puts which is only in part due to the stock market rally over the past month (+1%). Select single stocks have certainly rallied more that 1% in the last few weeks – but overall this has not been a massively bullish few weeks for stocks. However, when we see heavy call weightings into an expiration we generally think stocks will sell off or consolidate post-OPEX – and this situation is no different. Here, though, we see massive support at that 5,900. Post 6/30 expiration its less clear to us whats ahead. With that we last week recommended entering positions that benefit from a short term 5,900 test, and we reiterate that today.

While the world is watching pizza deliveries to navigate geopolitical tensions, we will focus on vol & positioning. SPX fixed strike vols are ~1 point lower for any expiration before 6/30. Curious.

Trump supposedly gave a 2 week time frame to escalate with Iran, which seemed to have let short term-shorts back off a bit. If you look for any expiration >=July you see vols as flat.

This suggests that the vol contraction is related to the Trump tweet, but we’d suggest that it is the massive JPM call at 5,905 for 6/30 OPEX that is the vol suppressor. Dealers are long a boat load of gamma near that strike, which could be suppressive implied vols. Post 6/30 that huge position goes away, and the vol surface seems to be suggesting higher vols around that time.

We don’t think we are overhyping the 5,905 position at this time – you can see it in the SPX GEX chart below as the massive positive bar. Below that level there are very few SPX dealer short puts, which indicates traders do not own a lot of put protection. This syncs up with the idea that this OPEX is quite call heavy – despite there not being a massive stock market rally over the past few weeks.

If we had to lay out a path here due to this positioning: 5,900 pin next week (to Monday 6/30), baring any significant Israel/Iran escalation. If that number is tagged between now and then, we would monetize put positions.