Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are flat with FOMC on board at 2PM EST.

VIX Exp 9:30AM EST. Be on the watch for large jumps in ES futures around the cash open.

TLDR: We are operating under the idea that Warsh will be a short term “no big deal”, giving traders the ability to short vol into a 3-day weekend. Into next week, the market should be an easier short as a big, call heavy OPEX rolls off. We continue to want to be long of stocks while SPX is >7,500, and short below.

Here we have the customer gamma map, inverted to show how Market Makers are positioned explicitly against this flow. This shows funds are short gamma < 7,500 (dealers long), which implies that dealers are in the position to buy the dip below. Conversely the dealers have negative gamma to the upside to offset customers.

To state this more simply: customers(buyside) are short puts, and long calls. If you go and check the gamma map for Market Makers, you will see they have largely positive, supportive gamma across all strikes (MM’s offset entities other than customers).

We present this view to see how the buyside is positioned into FOMC.

The SPX vols are a bit richer today ahead of VIX expiration and FOMC. These vols are not terribly higher, indicating fairly low stress in the options market, despite yesterday’s big negative delta flows. Today is a day which should start to “free up” vols, however due to FOMC we see a bit of a vol premium in the market, and so the outcome of this somewhat tenuous event may wash over “OPEX effects”. Additionally tomorrow’s massive June OPEX is additionally unusual because its “tomorrow” (T+1) whereas normally its T+2 (Friday). This means traders will likely want to short vol if Warsh gives them any opportunity at all.

RE: SPCX

Insane volumes yesterday as the stock opened with super-rich call skews, which ultimately suffocated the upside squeeze. Our latest positioning shows dealers long gamma across the board – an indication that retail/buyside is heavily short options here – particularly puts. Note how the most intense blue area is for today/tomorrow, then with June OPEX a lot of those positions expire. Note the July positions here show buyside is short calls and long puts (a risk reversal) – again dealers have the opposite side of that position which generates a lot of positive gamma to the upside (dark blue), and red negative gamma to the downside. The squeeze higher is going to be a challenge now, and support wears away into next week.

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