Macro Theme:

 

 

Founder’s Note:

ES futures are flat at 5,500. NQ futures are flat at 19,965.

Key SG levels for the SPX are:

• Support: 5,400, 5,360
• Resistance: 5,426, 5,452, 5,450, 5,460
• 1 Day Implied Range: 0.58%

For QQQ:

• Support: 477, 475, 470, 467
• Resistance: 480

IWM:

• Support: 195
• Resistance: 200, 205

42 Day Bill Auction 1PM ET

For today & tomorrow we expect little in the way of price action, with major resistance above at 5,450-5,460 (SPY 545), and large support below at 5,410-5,400. We’d look to opportunistically sell rips & buy dips at these levels.

The S&P is dominated by large amounts of positive gamma, which is supporting stock prices by suppressing volatility. The volatility suppression comes in the form of dealers buying dips, and selling rips, which brings price mean reversion.

In the context of this mean reversion, comes positive-price-drift due to the slide in short term implied volatility (vanna), and the OPEX decay (charm). These flows increase the “pull” of big call strikes (orange bars) in the 5,450 – 5,460 (SPY 545) area. We’ve just come off of summer-weekend, and are heading into the Juneteenth holiday (Wednesday), and that should only strengthen these vanna & charm flows through Thursday/Friday.

To overpower these flows, we need:

1. Several days of the S&P grinding lower, and breaking <5,300 to invoke negative gamma
2. OPEX to remove large swaths of call positions, which wipes away positive gamma

While we do not think the S&P price is set for a major decline today or tomorrow, we do know that ~1/3 of gamma positions will expire on Friday (6/21). These positions are extremely call heavy (orange bars), as the SPX has pushed into all time highs which adds to call values. Expiration brings a window for volatility to increase, and we look for that on Thursday/Friday into early next week.

We recently ran a study on OPEX impacts, and we found that 2/3 of the time the S&P performance flips from the week into to the week after OPEX. Meaning, if the S&P is up this week, it will be negative next week as OPEX flows adjust.

Second, we’ve been looking for a relative top in NVDA marked by the split, and the signs keep coming.

This is a 3 year look back in

call delta

for the mega-caps, QQQ & SPY. As you can see, NVDA (pink)

call delta

has now exceeded that of…everything, including the massive SPY (green) & QQQ (blue) options complexes (SPX is still much, much larger). Said another way: NVDA is completely stuffed with big call positions, making this OPEX a decent catalyst for consolidation.

What you can see is that the only other stock to do this was TSLA (dark green) in mid to late ’21, which was when the stock split & then was added to the S&P500 Index. That was also the all-time-high for TSLA (Nov ’21, ~$415).

We do not think looking for NVDA consolidation is crazy, as the stock has outperformed the SPY by 40% – just in the last month!

After OPEX, our prime catalyst (unwinding of long stock hedges) is gone, and we will be forced to take a “stop” on our NVDA short thesis.