Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are +40bps, NQ +80bps, with CPI on the tape at 8:30AM ET.

Futures are aided by MU’s ER +11% premarket.

TLDR:

Risk Pivot holds at 6,800 – if that level is recovered then we think its a signal of our hereto over-talked “Xmas rally”.

Sub 6,800 the favor sits with downside, and quite frankly there is no material positive gamma below. Like, anywhere. The issue with this is that a rally to 6,800 could easily fade, whereas >6,800 we’d anticipate put sellers coming in to add positive gamma support.

The field of play remains wide, as negative gamma reigns from 6,900 to 6,700. This wide swath of negative gamma is really no different than we’ve seen for the past week.

What’s also no different? The 0DTE straddle seems underpriced at $45/66bps (ref 6,755). You throw CPI onto this session, and it feels like the odds of >45 handle move today, at least intraday, are high.

As we’ve been relentlessly highlighting, the SPX has moved >58 handles each day since last week’s FOMC, but the 0DTE straddle consistently prices in less than 45 handles of movement. Take yesterday: 0DTE straddle was 42bps, SPX dropped 116 bps.

Yesterday’s move lower, triggered by bad ORCL news, seriously put in doubt any chance of visiting the upside JPM call at 7k by year end. We’re also below the 6800 Risk Pivot, which favors downside. We also marked VIX exp as a trigger for change – and while we were leaning towards a bullish SPX move, its clear the VIX expiration at least coincided with and unlocking…it just happened to be some downside. Before we move to a larger point, we can’t help but point out that the exact moment of VIX exp (9:30AM ET) was an exact low for VIX (black line)…funny how that works.

The larger point here, is that even though the SPX dropped 1.1% yesterday, vol quite frankly remained subdued.

Consider Jan exp skew for this AM (teal), vs that of 12/16 (Tuesday, gray). The SPX dropped 100 handles since then, yet put skew is unchanged. If anything, the upside is catching a bit of a bid here, as you can see via the call side steepening (teal > gray).

We touched on this issue yesterday, that vol is pretty lazy despite the drawdown. We point to stock selling as a downside driver, wherein you just derisk/degross vs hedge out positions. Regardless the cause, we think its hard to get capitulation downside unless vol gets involved, and we think that is hard to manifest into this OPEX + holiday period. I’ll add that I am personally are aware of how often I’ve been saying “holiday bounce” over the last week, and the thought has occurred that possibly this sleep vol is a result of the “seasonal” period, too. In other words, if we didn’t have these end-of-year OPEX/holiday dynamics might SPX be down much more sharply (and/or vol up?). Its obviously tough to say, but the bottom line is this:

Risk Pivot holds at 6,800 – if that level is recovered then we think its a signal of our hereto over-talked “Xmas rally”

Sub 6,800 the favor sits with downside, and quite frankly there is no material positive gamma below. Like, anywhere, and with vol also low we are hesitant to lower the Risk Pivot (vs if there was a big fat vol risk premium).

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