Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are off 10bps ahead of ISM.

7,500 remains key resistance, due to ~20k long MM calls at that strike. These are not just 0DTE calls, so this should be a key level in through tomorrow. Above that, there is a strip of positive gamma from 7,520 to 7,600. If ISM is benign, we think SPX captures 7,500 today, and plays with resistance at 7,520. If NFP tomorrow is quiet, then we may see a final push into the 7,550-7,600 for tomorrow. This upside is driven by dealer support, and the holiday vol crush.

Support is at 7,400 and we go risk-off <7,380. That being said, we are going to start adding some small put positions on today (pre-NFP), with eyes on a larger allocation into potential highs for tomorrow. Why puts?

Enter: COR1M. Its now at a 5, and those of you who have been here for more than a week know that is our Bat Signal for “spasms ahead”. You can see this via COR1M (bottom candles) vs QQQ (blue). Yes, those nasty very volatile spasms-dips were bought right-back-up, but that does not mean these moves should be ignored.

What’s driving this? SPY IV is sliding lower, as you can see in Compass. Tech IVs, which have moved off of the rich call skews, still maintain very high relative IVs. This gap drives the lows in COR1M. The other thing to note here, is that SPY has a call skew ranking of 85. So we have correlation lows, with people leaning heavily into calls. That is not a bad place to buy put options as they are fairly cheap, and definitely unwanted.

For puts today, we are going to look for some cheap 3-5% OTM put flies that expire next week just in case there is a pre-holiday spasm (unlikely). Into tomorrow we would prefer some put structures >=August in order to limit time decay and give us some time for correlation to (potentially) spasm.

The other thing we have been wanting to think about here is the shorting of vol in some of these high-flying names. If these call skews are reversing, then we could see some “stock down, vol down”.

Shorting vol, or calls in these top tech names was a brutal exercise from April up until June, as positive earnings kept surprising. Now, with no earnings in the short term, we still see names like AMD exhibiting very rich IV as you can see here. The stats band (teal shaded area) are stats from the last 90 days which covers a lot of the huge volatile upside in the stock.

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