Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are up 50bps, with Jobs data at 8:30AM ET.

Its not entirely clear why equities are up so much this AM. Some cite AAPL’s $100bn US investment (+2%), with no clear trade deals marked per WSJ. However, the SPX 0DTE straddle is at $26.6/41bps/IV17% (ref 6,385) – those prices are dang near as low as it gets. This suggests that tariffs don’t really matter, at least as far as headlines go today. It was only a week ago that we hit “death valley” lows in 0DTE prices, when the 0DTE straddle was $18.6/IV 11.3%!

With this overnight move the SPX is now set to be essentially unchanged from those 7/31 prices, but with vols having a bit more juice in them we think its a bit more stable. Why? Because absurdly low IV’s are a cause in-and-of themselves for risk (as per the post-FOMC drop). On this point if we start seeing short dated IV’s back near 10% then we will be looking to re-enter put/VIX lottos – but it appears we have another ~2 vol points to decline until then.

Turning to todays positions, at this moment we see small but consistently positive gamma at strikes 6,300-6,400 which implies decent market support. Its not massive support, but its likely that 0DTE positions come in near 6,350 and 6,400 to reinforce that range. As it looks now, should SPX break >6,400 we could see a bit of a run back to intraday all time highs near 6,425 (set on 7/31). The big thing here is that this flow is likely to continue to contract realized volatility, which allows implied volatility to sink. That, in turn, helps to add a tailwind to equity prices.

This suggests that the major piece of the SPX move may be done for the day, and that syncs with the idea of focusing more on single stocks instead of indexes. This was a theme into last week, and the FOMC/month end led to a pop in correlation as traders shifted out of equities and into other assets. Now we suspect that correlation will drive back lower, as single stocks may outperform. We think this could be particularly true given a lack of data points from here until next Tuesday’s CPI (8/12), then OPEX on 8/15 (VIX exp 8/20).

Interestingly tech continues to screen as having cheap calls, with QQQ/XLK/SMH all having low call skew ranks. We think tech calls remain a fantastic way to get upside exposure at cheap prices.