Macro Theme:

Short Term SPX Resistance: 5,115

Short Term SPX Support: 5,060

SPX Risk Pivot Level: 5,000

Major SPX Range High/Resistance: 5,115 (SPY 510)

Major SPX Range Low/Support: 4,800

‣ We look for index volatility to now contract after hitting the 5,100 is the upside target.*

‣ 5,000 is critical support, up from 4,900 the week ending 2/16.*

‣ March Quarterly OPEX (3/15) is the next major inflection point.*

*updated 2/23

Founder’s Note:

ES futures are flat at 5,100. NQ futures flat at 17,990.

Key SG levels for the SPX are:

• Support: 5,090, 5,060
• Resistance: 5,100, 5,115 (SPY 510)

  Call Wall

• 1 Day Implied Range: 0.67%

For QQQ:

• Support: 435
• Resistance: 440

  Call Wall

IWM:

• Support: 195
• Resistance: 200, 210

  Call Wall

Today’s 0DTE ATM SPX straddle is just $20, or a scant 39bps! We can’t recall having seeing the 0DTE straddle priced at such tight levels in the past, and it suggests a broad level of complacency and trust in the current market paradigm. Our 1-day SPX implied range is 67bps, with SPY 510 as the major upside level on the S&P500 board. Support is at 5,090 then SPY 505 (SPX 5,060).

In regards to a 39bps straddle, we refer to this as “priced for perfection”, as there is nearly no edge for a straddle seller. Any slight market movement, in either direction, can force the seller offsides and cause a cover trade that exacerbates local, jumpy volatility. In this case we see stagnant

Call Walls

(i.e. SPX/QQQ walls have been stuck at 5100/440), which, when combined with the tight straddle pricing, signals that traders are likely happy with the 5,100 area as fair value until new data shifts forward expectations.

The net of this is that we think there is not much index edge for the 0DTE option sellers here unless a >40bps move materializes. Should a move happen, we think SPX will likely exhibit mean reversion back into the 5,100-5,115 (SPY 510) area over the through Thursday AM.

In regards to the current paradigm, the idea of being “short index vol” (as suggested on Friday) is novel, because vol has been holding strongly into this higher SPX market. Consider both the 13.8% 1-month SPX realized vol (green) and 15% 5-day SPX realized vol (red) which are up near highs last seen in November. Over the last month the SPX is ~4.5% higher, with the VIX now holding above 14. A VIX of 14 implies 88bps daily SPX moves, which is a stark contrast to the 39bps priced into the 0DTE SPX straddle.

This divide between the SPX implied move (88bps) from the VIX and the 0DTE pricing “perfection” (39bps) is likely the result of Thursday AM’s CPI reading, which is the big data point this week. The 0DTE crowd does not have to worry about that print for 3 more sessions, whereas the VIX is pricing in some higher volatility. Assuming the CPI is not some type of hot tail print, we think the VIX and SPX volatility will now likely start to move lower into March OPEX (3/15).

This all further suggests that traders may want to focus on the single stock side this week. There are a few interesting things happening with AMZN joining the DOW today (effective this AM), and the AAPL Annual Shareholder meeting on Wednesday. Skew’s remain call-heavy across the tech sectors, and we think this phase is likely about “catch up” in names that have not participated in the broader rally to ATH’s.

For example, a name like PANW (below), which was a darling pre-earnings. After earnings it dropped 25%, but we now see its skew ranking in the 99th percentile. This informs us that traders are likely using the calls to buy the dip.

We also see 99th %ile skew rankings in AAPL, GOOGL, MSFT (all off ATH’s), as well as AMD, SMCI, TXN and SMH. High skew suggests dealers are in a negative gamma position in these names, which implies volatility (or potential volatility) remains high as dealers may have to buy stock into upside moves, and sell stock if these names move lower.