Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are up 50 bps, recovering from Thursday’s spams.

TLDR: What’s the trade here? We continue to like short dated deep QQQ put flies, and will look to add to S&P index August put positions playing for a “spasm that sticks”. In a perfect world, we’d see negative gamma for the SPX and for single stocks, and so we are hesitant to be too aggressive with put positioning, but we have been rewarded for buying puts when these vols get far out of whack (i.e. COR1M <8). It has been critical to monetize those puts “same day”, and not try to hold for something longer term, and so we will continue to respect that buy closing and/or rolling winning positions.

The SPX remains blanketed in positive gamma, with 7,500 the major strike. This strike should remain significant at least through to July OPEX (next Friday).

The same positive gamma positioning remains in place for the top single stocks, too. This generally means dips should be bought, and rips should be sold.

This positive gamma positioning remains juxtaposed against volatility prices which are primed for spasms. We saw another one of those spasms on Thursday after the NFP report as the Nasdaq dropped -3%. One could argue that stocks were “saved by the weekend bell”, with the three day weekend likely leading some to closed up some long vol positions near Thursdays close.

The Q’s have been realizing 1.5 – 2% daily moves, but certain spasms over the last month have been producing some much wilder swings. On net traders have been rewarded with buying dips, as appears to be the case today. Give the positive gamma positioning in SPX + single stocks, its hard to argue against that behavior – as long as you monetize the rally.

As we’ve outlined the last few weeks, the tricky part here is with the volatility levels of tech stocks. The vols remain very high, and so sharp downside, which slightly increases vol even higher, can be justifiably monetized as its priced in. This, versus having to reprice vol due to somewhat unexpected moves. Here is the week-over-week change in August AMD skew – a name that has +95% IV Rank, and you can see there is a slight vol increase but its not much considering AMD dropped 12% on Thursday.

Another view here is of the week-over-week change of the QQQ August skew, and you can see the ATM is flat, with the deep put wing steeping slightly. That is not much movement even though we’ve see these big, sharp moves lower. Again – its just hard to push the vol up here when its already pricing in ~2% daily moves, and the dips get bought so hard. What we are really going to need to see as a “this is it” downside flag is some movement in SPX vols, which remain 10-12 vol points lower that the Q’s.

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