Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are off 35bps, but were off as much as 1% to SPX 6,700 overnight after some oil tankers came under attack. Accordingly crude, our primary signal for risk, was at 104 before settling back to 91.

As you can see in our latest SPX GEX, the current SPX prices have the SPX rolling in the trough of negative gamma. That is to say negative gamma starts to decrease to the upside, and it starts to <6,600. This suggests that negative gamma pressure reduces immediately into 6,900 and <6,600, which fits with our “large swinging range between 6,600 and 6,820” from yesterday.

Further, despite the large overnight move lower, vols are actually flat vs last night’s close – despite the overnight happenings. That is a good sign that selloffs from here, while quite possible, may lack magnitude.

The other sign that traders are not seeing an all-clear for stock comes in single stock positioning. As you can see in Compass there is incredible correlation here: all stocks are put-bid with moderately high IV. This screams more to lack of demand for calls vs desire to short stocks, with high risk ahead. In the latter scenario, you’d think higher IVs would be in play which would place points more “mid left” on the chart vs lower left (low IV, put skewed).

We think this comes back to a core overall point: for months stocks were unable to break through the 6,900- 7k ceiling, and that was without this conflict in Iran. After the large vol spike into Monday, there was certainly some vol selling which helps with stock buoyancy, but appears to be no true long stock demand at this point. We think the takeaway from this is that stocks can continue to roll in this prevailing range, albeit with large swings, while IV still manages to come in from recent highs.

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