Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are up 15bps ahead of PCE at 10AM ET.

Today’s levels:

Support: 6,850, 6,820, 6,800

Resistance: 6,900

On the PCE topic, the 0DTE straddle is just $29.3/42bps (ref 6,865) which is quite low. This infers traders are not terribly focused on this mornings report, which could be simply because its September’s delayed reading. Ultimately if it passes without issue it likely brings a mild event-vol contraction which aids in buoying stocks. PCE gives way to a weekend, too, which is generally a vol-depressant.

Recall, too, that the last 2 sessions have seen violent jumps that mean-reverted. This, as the 0DTE SPX options IV is bottom-basement level. We yesterday discussed how the ultra-low IV causes some short term jump risk as sharp moves can be compounded by 0DTE vol covering. Something to be aware of today if a sharp drop hits on no real news…

Looking at the bigger picture, we continue to mark two key zones on the S&P, which have largely been unchanged this week. 6,925-6.950 to the upside, which is likely major resistance into FOMC, and 6,750-6,700 to the downside. We’re of the view that upside drift likely remains in play into FOMC, it would take a material trigger to invoke a spill to that 6,700 area. On this topic if the SPX breaks <6,790 we would flip to a neutral or short position.

What about the upside?

As we discussed in yesterday’s Q&A, the pre-FOMC upside is really cheap. 7-handle SPX IV’s are about as low as you can get, and thats where >=6,900 strike calls are priced Monday & Tuesday. Given this, we’ve take a few >=6,900 lotto call positions for Monday & Tuesday on the basis of “sometimes you just buy options because they are so cheap”.

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