Macro Theme:

Short Term SPX Resistance: 4,412 (SPY 440)

Short Term SPX Support: 4,350

SPX Risk Pivot Level: 4,315

Major SPX Range High/Resistance: 4,450

Major SPX Range Low/Support: 4,200

‣ Equity direction is likely to be driven by Wed PPI/FOMC mins + Thursday’s CPI. 4,450 SPX is the short term upside target out of these events*

‣ 4,500 SPX is max upside into Oct OPEX 10/20*

‣ 4,200 SPX is the Oct OPEX downside target if PPI/Fed Mins/CPI datapoints are bearish*

*updated 10/12

Founder’s Note:

ES Futures are flat to 4,373. Key SG levels for the SPX are:

• Support: 4,315 & 4,300
• Resistance: 4,350, 4,377, 4,400
• 1 Day Implied Range: 0.76%

4,300 is major support for today, and we are looking for volatility to subside, as yields are back lower, today (US10Y 4.6% vs 4.7% y’day). 4,400 is large resistance.

The combination of a hot CPI & poor treasury auction smacked stocks lower intraday, but the SPX recovered to close right on the SG 1-Day Implied Move of 0.76% (see note here). And, yes, the afternoon plunge also drove the VIX up, but IV changes on a fixed strike basis were more muted (more on this below). The takeaway here is that yesterday’s price action actually ended in line with modeled moves, and did not appear to draw any excess hedging or macro flows. Said another way – that yield pop didn’t break anything/spark panic.

What was unique about yesterday was the AM rush of short dated (1 DTE) call flows into top tech names. A prime example of this was NVDA, wherein you can see from just before 10AM the

HIRO

deltas ramp up (as they did with other top tech), corresponding with major highs in the stock (and QQQ).

Around 10:15 AM those flows shut off (as they did in many other big tech names). Then you can see just before the 1PM ET treasury auction, those short dated calls begin to sell off (teal line) before the big plunge lower.

Summarized: huge

call volumes

in some type of tech buying programmed ramped up stocks in the AM (despite a hot CPI), and then all that flow unwound after the treasury auction. When 1DTE options are this active it drives volatility and exaggerates moves.

Moving on to the VIX/IV’s – shown here is SPX skew for 11/14 exp today (pink) vs yesterday (gray). What you see is that, on a fixed strike basis (x axis), mid Nov IV’s are 1/3rd of a vol pt higher across the board (spread between the two lines). This is pretty mild, and it suggests that there was not a lot of Index put demand triggered by the rate pop.

Why was the VIX was up from lows near 15.4, to highs near 18? This rise appears to be a function of the “fixed strike slide”. The VIX gives a higher weighting in its calculation to ATM options 30 days out in time. Therefore yesterdays ~1% SPX drop changed the ATM option from 4,386 (highs) to 4,330 (at the lows). This in turn swapped the ATM IV for VIX from ~13.5% (right end nock of the green arrow), to ~15.2% (left point of arrow). If fear/put demand was sparked, the pink line (i.e. today’s IV’s) would be markedly higher than yesterdays readings.

The takeaway here is that we think things are going to settle down in the 4,300 – 4,400 for today into early next week. Further, a break of 4,400 before OPEX is likely now off the table as the

Call Wall

now stands at 4,400 (+ SPY 437

Call Wall

).

If the S&P holds 4,315 (SPY 430) into Monday, then the charm of next week’s OPEX may become a dominant force and help to drive vols lower and pin us into this 4,300-4,400 range.

For the downside scenario, “risk off” still accelerates <4,300, which may lead to a test of 4,200 lows into OPEX.