Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are flat with no major data listed for this AM. All eyes are on NVDA ER, tonight.

SPX is blanketed in positive gamma for now, which infers another low volatility session.

Zooming out, this is what the map looks like:

• >=decent NVDA earnings move the SPX to 6,500-6,525, which unlocks “The Zombie”: a low volatility regime that dominates into Sep OPEX. We would want to select top “memes and themes” i.e. tech or small caps vs owning indexes, as we think vol suppression in the S&P500 would lead to S&P lagging top sectors
• Bulls will hold the edge until/unless SPX 6,400 breaks. If 6,400 breaks we think things can get quite nasty due to dealer short put positions in through 6,1xx’s.

NVDA Earnings

The options implied move for earnings is 5.6%. We see predominantly large positive gamma strikes from 180 all the way up through 200, which should suppress upside vol. Given that, a meet-to-strong outcome and we think 185-190 is the move, with the best case 200 (its a massive OI strike). >200 we’d read as overbought. Given the implied move is 5%, we don’t see much edge in outright options plays to the upside (unless you are playing for a full-on blowout). Further, if you look at short dated skew the call prices are relatively depressed, which syncs with this dealer positive gamma.

A miss is not really being priced in. To the downside there is a pocket of negative gamma from 180 down to 165. Given that, weak earnings could bring the stock -9%, which is obviously larger than the implied move. Placing a cheap bet that NVDA will miss is obviously sacrilege, but this, for us, is where the soft spot to pricing is.