Macro Theme:

 

Short Term Resistance: 4,450 – 4,465 (SPY 445 Call Wall)

Short Term Support: 4,415 (SPY 440) – 4,400

Risk Pivot Level: 4,400

Major Range High/Resistance: 4,500 Call Wall

Major Range Low/Support: 4,200 Put Wall

‣ We maintain a bullish stance while the SPX is >4,400 and below the 4,500 Call Wall (updated: 7/3/23)

‣ We anticipate declining market volatility into 7/21 July OPEX (updated: 7/3/23)

‣ A downside break of 4,400 is our “risk off” signal (updated: 7/3/23)

 

Founder’s Note:

ES futures are up fractionally to 4,449. SpotGamma levels are largely unchanged overnight, with 4,400 – 4,415 (SPY 440) remaining the largest gamma strike. Over this level we see resistance at 4,435. Support below shows at 4,365 (SPY 435).

We remain bullish >4,400 (long delta), neutral in the 4,350 – 4,400, and bearish <4,350 (short delta and/or long vega).

For today QQQ support shows at 365 with resistance at the 370

Call Wall.

We see 360 as the significant support into next week.

Single stocks saw a fair amount of volatility yesterday, in part driven by the QQQ rebalance. Major indicies, though, were very quiet with SPX closing +9bps, QQQ +3bps. We’re looking for another low volatility session today, as traders await tomorrows CPI.

On the rebalance note, there was little change to megacap tech levels in our EquityHub, suggesting that options traders did not making major adjustments.

Shown below is the implied probability for the SPX to close at given strike, on a given expiration. As you can see, today favors a pinning displayed by the sharp peak around 4,400 (top, gold line). The distributions flatten out starting tomorrow, as these expirations all account for tomorrows CPI data.

The volatility assigned to these CPI prints has decreased dramatically. Shown below is term structure before several of the past CPI prints, with Dec ’22 (red) and Mar ’23 (blue) vs current (white) and June (green). The takeaway here is that, barring a “tail print” then, IV’s likely decline which is a small tailwind for equities.

We’re also now seeing a full reversion in skew, as shown below. Recall that June was characterized by this “frothy upside”, and those elevated call IV’s have reverted with the S&P just ~1% off those June highs. While calls have cooled off, Goldman notes “1-month put-call skew for the average S&P stock is also low right now (5th-%ile over past 1yr), indicating investors are generally well positioned for upside asymmetry.”

Framed another way – there isn’t a lot of hedge demand.

As an addendum to this, we see that there was indeed a big call buying spree, particularly with retail traders (h/t TME).

While that call demand has cooled some, there are still pockets of chasing, as exemplified by names like NIO and RIVN, which printed massive huge

call volumes

yesterday (305k & 534k, respectively). As an interesting anecdote below is call volume from yesterday, with 5 of the top 20 volume names being auto’s…

We view these flashes of heavy call demand as a sign of risk tolerance. Combining this along with that light put demand suggests that equities still have positive sentiment. For now, this seems to align with the gamma-based equity support which should hold until next week (see yesterdays note).

One quick admin note/request:

We’ve added a “Review” button on our AM & PM notes as a way to receive feedback. This will greatly help inform us as to what the SG community finds valuable and/or what we can improve upon. Even a simple star rating is greatly appreciated!