Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are 50bps higher, pushing SPX to 6,120 and SPY 610. This is record high territory.

Jobless Claims 8:30 AM ET.

The 0DTE straddle is $22.6/36bps/IV15.2%. We do not know what the lowest 0DTE straddle price ever is – but we imagine its not too far off of a that price.

As noted last night we are now seeing 10-handle ATM IV’s in the SPX, and that is low vol is being supplied by a bunch of ATM gamma (highlighted below). When does this change? It doesn’t appear to be on tap to change this week – maybe Monday and the 6/30 OPEX.

So – whats the trade? First, the trade is to NOT be selling options. Do we think vol spikes today or tomorrow? No. But whats the risk/reward of being short 10% SPX IV?

Second, as highlighted yesterday AM, the SPX is likely stuck while single stocks can move. Ex: NVDA was +3% yesterday and +1.5% premarket, AMD +3% yesterday and +3% premarket.

Why do we think Monday can let the vol out?

There appears to be a kink in the volatility curve centered on the 6/30 OPEX. This is evident in the fixed strike grid, but it’s most clearly highlighted in the Forward Implied Volatility (FIV) estimate, shown below.

Note how the FIV for 6/30 is higher than the surrounding term structure. FIV measures the expected implied volatility between two expiration dates, and is often used to isolate volatility expectations while removing the distortions caused by positioning or events concentrated on a single expiry.

It’s relatively rare to see FIV trade above the current term structure, and it often signals that the market expects volatility to increase following that expiration. In this case, it may reflect the unwinding of large positive gamma positions or anticipation of catalysts in early July.

Does that mean we think the market crashes after 6/30? Well, no…as volatility can work both ways. It does mean we don’t want to be short index vol after Monday AM. That being said, buying index options (calls and puts) seems very cheap.