Macro Theme:

Founder’s Note:

Futures are off fractionally, with no major data on deck for today.

Futures have buoyed back above 6,900, after the SPX touched 6,780 on Thursday. 6,950 remains our Risk Pivot, which means we view the SPX <6,950 as unstable. Being honest, the market has not exhibited much stability >6,950, but there remains non-0DTE positive gamma into the 7k strike which, if SPX >6,950, could start to offer stability into Feb OPEX.

Below 6,950 this rally remains quite unstable, and the risk of protracted downside increases sharply with SPX <6,900.

Traders are really watching macro data later this week, as evidenced by the SPX term structure. There is a 4 vol point drop between this week’s data which features Unemployment & CPI (both on 2/11) + PPI (2/12) vs next week. The argument here may be that this week’s macro data could further support a March rate cut. A week ago odds were 10%, now 18%. That’s certainly not a lock, but a big change could put a more consistent bid into stocks. Further, one can argue that there is some decent vol premium available.

On this topic: software. It has certainly been in the bears crosshairs this year, but we are seeing some signs of traders now selling puts and/or buying calls in the space. You see this with IGV (software ETF), which shows a slight favor to call IV vs put IV, with IV Rank exactly at 50%. There is obviously a lot of vol and price dispersion in this space, but with IGV and XLK having been nuked as of late we see signs of put selling. The software destruction which has taken place has occurred with the SPX currently being ~1% from all-time highs, which is remarkable. We wonder if a bid to that space gives the SPX lift to 7k into Feb OPEX.

Several of these key software names report this week: INTU, DDOG, CRM, ADBE, etc. These names all have very high IVs and so earnings plays may offer excess premium vs previous earnings. Also, rather than taking longs in something like IGV or XLK you may be able to find better risk/reward in combos (short put, long call).

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