Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are flat with JOLTS at 8:30AM ET.

There is now a fair amount of gamma >7,000, and that is not all 0DTE. This suggests 7k will take some time to digest, and so we look for low volatility and resistance into this strike. It also implies market support. The same can be said for <7k, as we see positive gamma from 6,950 to 6,975. Given this, we’d be looking to scalp dips into that area, and sell rips into 7k. Should the SPX lose <6,950, we’d flip back to risk-off.

As the SPX rallied back into the 7k strike yesterday we noted a slight contraction in vols of 1/3 to 1/2 a vol point across the surface. That’s not terribly exciting, and suggests vol contraction (vanna) was not so much of a driver in yesterday’s recovery. Vol contraction would be a hallmark of forward stock stability. While the last few days say big intraday vol, the 5-day realized vol (based on close to close) is only 5%, with 1-month at 10%. Thats quiet.

Those realized vol metrics cloak intraday vol, and yesterdays rally was big: at least 1.6% from overnight lows. We’ve seen similar daily swings over recent days – which feels weird.

No one likes feelings around here, so we turned to data. Here we have a 5-day rolling comparison of SPX close-to-close vol vs intraday range vol (high-low/open). What we see is that this metric is currently negative, and that is telling us the intraday swings are anomalous.

The forward returns from these events are actually positive (5-yeas of data, n=76 negative days). For 1-day forward returns we see fairly flat outcomes, but the 3-day return histograms look strongly positive – and we’d note the 5-day looks even a bit better (that one nasty left tail was Feb of ’20 (Covid)). This seems like a signal you don’t want to fight, particularly if we remain above 6,950.

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