Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are up +85bps after META (+11%) & MSFT (+8%) blow out earnings.

The landscape for SPX at the moment reflects light positive gamma across the board, with the big 6,500 strike as the target above. In this case, we see the light positive gamma as supportive of the SPX, and its the potential for volatility crush that should lift equities higher. This is vol crush from post-FOMC, and what is likely to be benign jobs data today and tomorrow. We say “likely” vol crush from upcoming data because basic odds are that data points will be somewhere between in-line and better than expected. Vol crushing is the vanna-boost for stocks.

Adding to this is AMZN + AAPL ER tonight.

If events unfold without issue, then we think a short term equity pop for SPX >6,450 happens into Monday, and then its likely a grind into and around 6,500 into August OPEX week.

Quantifying the vanna potential, we think that ~1-month SPX vols could contract another 1-2 vol points from 12-13% to 11-12% (and VIX 15->13). This view might be a bit aggressive, as Trump has just restarted lobbing tariff tweets in (which yesterday caused a brief copper shock), but the US equity market overall has been listening less to these tweets. Moving past jobs data this AM will give a short kicker to 0DTE prices, and then we face a similar situation with NFP tomorrow.

Those Trump/Bessent remarks about 8/1 still being a major deadline appear to have added ~1 vol point to tomorrows expiration. Whats a bit funny about this is that the term structure is quite elevated for tomorrow vs next week, and if tariffs were this unknown risk you would think the >8/1 vols would be higher, and the term structure would look more like a slope/ramp instead of a right angle. PMI and NFP are of course tomorrow, which likely adds some vigor to these 1DTE IV’s, but we’ve also seen some “vol guys” note that its a Swiss Bank holiday tomorrow. Whatever it is (or the combination is), the potential for a decent vol crush into a summer weekend is certainly in place.

The other thing here is that if you are worried about downside, you can enter into very cheap short dated put spreads or put flies. As we are in cheap fixed risk upside calls, our hedges are limited to the “sliver” of puts/VIX calls discussed over recent notes.

Seeing both sides, as good as those Mag earnings were, we see SMH is actually down 25bps (vs NQ +1.2%) this AM as both ARM & QCOM are -6% after earnings. Thats not a great look for us, as we have been proponents of buying cheap SMH calls over index.

We still see SMH as having a relatively easy ramp to 300 – its over that level that positioning decreases rather sharply and our “outperform” view has no positional substance. And, yes, there is plenty of negative gamma to the downside, but since we are (again) in cheap calls the downside risk is locked in at low cost levels.