Macro Theme:

Founder’s Note:

Futures are flat, with no major data releases scheduled.

TLDR: We anticipate SPX holding 6,900 today and drifting back up into 6,920 (SPY 690). We have some of our key metrics signaling “risk ahead”, but we think that’s more of a “next week think” vs a “today problem”. Having said that, we want to be leaning long of equities while SPX remains above our Risk-Pivot of 6,890.

There is painfully little to update on today, as the SPX has lodged itself back into the 6,900-6,950 box that dominated price action for most of January. It also seems that the SPX is unlikely to do anything different unless geopolitical tensions flare and/or until FOMC/major earnings initiate on Wed 1/28. Currently we do see positive gamma support layered below 6,900, and we think this dynamic is unlikely to change into the weekend. Conversely, we don’t see much reason for the SPX to break above 6,950, not only for today but that’s likely a cap into Wednesday.

Not only is the SPX “back in the box”, vols have sunk, too. VVIX erased its jumpy OPEX move, signaling VIX calls are no longer in demand…

…and COR1M (equity correlation) is flagging that single stock calls are bid. On this topic COR1M is near our “we should buy some puts” level of <=8. We think that it likely crosses that threshold today or Monday. This metric at our “Risk-Off” level, with cheap VIX call spreads (as signaled by VVIX) makes the setup for either owning ~1-month out VIX call spreads and/or 1-2 month out SPX put spreads much more palatable. This setup makes things “spasm-y” which is what the whole reaction to Greenland seems to have been – a nothing-burger exacerbated by offsides vol positioning (all happening right around OPEX).

Seeing both sides, earnings moving through should improve correlation as single stock implied vols decrease. Further, one could argue there is a decent vol premium with VIX near 16 and SPX realized vol at 9-10%. If FOMC passes without issue, and earnings are good, then 7k could happen by Feb.

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