Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are up 15bps, right back to 6,850 which is squarely in the range which has dominated since essentially Thanksgiving (6,800 – 7,000).

That range is still subject to the same gamma dynamics in the SPX: negative gamma <6,900, and positive gamma >6,900. This implies that the SPX could slip down into the 6,600s at any moment – however that risk has been in place for at least a few weeks. Downside just won’t take the bait!

That being said, don’t be surprised if at some point the dam breaks. I can’t say we are positioned to bet on this dam-break scenario, but we respect the possibility.

Yesterday the buzz was all about the Citrini article. We have no opinion about the article itself, but we came across this quote about the day’s action and found it, well… hilarious:

“It is a remarkable reaction,” said Michael O’Rourke, chief market strategist at Jonestrading.

“I have seen this market exhibit incredible resilience in the face of actual negative news. Now a literal work of fiction sends it into a tailspin.”

We certainly aren’t trying to be dismissive of the article, nor of Citrini. But O’Rourke has something of a point: tariffs, wars, rates can’t get downside going, but the financial-sphere was tripping all over itself about this article.

Was yesterday really that bad though? This type of price movement is/was not really that exciting given the dispersion that has been the main trading topic over the past numerous weeks. There have been huge sector moves, particularly in software, and the index has largely not cared.

That said, you cannot deny the put skew that re-formed in these names. You see this my the movement to the top left of our Compass, which tells you that put skew is increasing. The lines show the movement of the various names over the last 5-days, and so there is a clear “right to left” move, which signifies the bearish leanings. Further, many of these stocks are nearing IV Rank of 100 (top of the chart).

While the vols moved sharply, we cannot say there was a notable explosion in options volumes. Here we have a Software and Digital Payments basket which were the focus of the aforementioned article.

Put Volume for both of those baskets was below that of the last 30 day average, and interestingly call volumes were a touch higher than average. This signals that the high vols above are less positional (i.e. dealers being stuffed with short puts) and more a reaction to the stocks’ volatility. The takeaway from this is that we think a lot of this price action yesterday was short term day trading/algo momentum kind of stuff vs an apocalypse.

Earnings tomorrow for the likes of CRM, ZM, TDOC then INTU, CRWV on Thursday will likely determine the price action in this space of the short term, but we still like playing the implied volatility into these earnings. CRM, for example, has IV that is so high that the earnings IV drop should compensate you for price movement. We’ll post a few trade ideas tomorrow AM on this.

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