Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are +35bps with no major news on the tape.

TLDR: Stocks are poised to move this AM. We want to lean long with SPX >6,600, with a short term target of 6,700 into tomorrow. Should 6,600 break, we go back to risk-off & 6,500 becomes the obvious first support. 6,350 remains our “wash out” risk area.

With Friday’s put-heavy OPEX behind us, the major event this week is Thanksgiving market closure (Th), followed by the 1/2 session on Friday. This matters particularly in this very high volatility environment, wherein time decay is exacerbated by high IV.

We’ve been

hammer

ing on this dynamic for the better part of the week, with the theme that if you are now long puts you are facing a very serious decay tax, and you must have high downside energy to pay that tax. The E.L.I.F. is this: higher IV = higher theta. The takeaway is this: there is currently a positive drift in this market, and new sellers has to overcome this drift. Given this, we want to play the long side if SPX remains >6,600. A break of 6,600 likely invokes a re-test of 6,500.

This decay dynamic plays into a very negative SPX GEX. You see this in TRACE wherein the map is “nothing but red”, and also in the EquityHub GEX, below. As you can see, with OPEX behind us gamma currently gets more negative to the upside, with 6,750 being the largest gamma strike on the board. To the downside, GEX remains stable into 6,350, which is our “wash out” downside target. Under 6,350 we currently see a reduction in positioning that could coincide with lows.

Here is one last dynamic: puts are pretty expensive. Below we see top stocks heavily skewed toward the put side, mainly due to an absence of call buying. However, IV’s are not yet screaming (IV Ranks are <50). We ultimately view this as puts being rather unreasonable buys here unless there is an actual, material trigger. Not rumor of an event, but an actual event. Otherwise this put skew and moderately elevated IV is tough to maintain.

For single stock highlights, we watch GOOGL today, which is +3% premarket after both Buffets small buy and Sam Altman allegedly sweating GOOGL’s growth. There are two big negative gamma strikes at 300 & 305, with relative positive gamma >310 (first resistance). If this is the start of a rotation into GOOGL, then a relative value play like short put spreads in QQQ for long GOOGL call spreads could be an interesting idea.

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