Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are up 50bps, with VIX Exp at 9:30AM ET and FOMC at 2PM ET.

Traders active around 9:30AM ET should be wary of sharp, unusual swings due to VIX Exp.

The 0DTE straddle is just $44/65 bps ref 6,755. That’s quite light given the swings we’ve seen (i.e. realized vol), but also the FOMC. The FOMC holds no chance of a rate cut, but obviously interesting things are on the table with respect to oil related inflation, and private credit issues.

The gamma picture has changed for SPX, with positive gamma now coming in >=6,800, as indicated by the blue zones on TRACE. This indicates resistance for today, and is likely traders stepping up into some relative rich pre-FOMC premium. That resistance is the upside for our “rally this week” view laid out on Monday. The SPX is up ~1% from Monday’s open (+1.75% from Friday’s close), and so maybe there is another 50bps to 1% of upside, and we prefer the fixed risk of call spreads/flies to capture said move. We do not want stock.

Why? Because to the downside, if Powell shifts sentiment to risk-off, then we think selling can be sharp, and deep with the door open to 6,500.

Normally we’d be looking for this huge March OPEX to clear out puts & vol premium, and spark a more significant stock rally. The huge ~12 vol premium (SPX IV/VIX over RV) we had into this week has trimmed to “only” 9 points, and will FOMC passing we may see another 1-2 points of contraction here, which would help for a final 6,800 push. We think there are many traders unaware of these options dynamics and are scratching their heads as to why the market rallied this week, given the Iran situation is, well… tenuous.

Polymarket holds military action against Iran through March 31st at 89% (i.e. no short-term deal), which suggests that vol premium is unlikely to clear before March end. That signals to us that the move lower in IV this week is more related to the positioning & expirations vs something more macro. Further, we could make an argument that this large OPEX is simply clearing out some of the hedges that may have buoyed the market to this point. If conflict remains and there is a bid into oil, then equity vol is going to remain bid.

Laid out more simply: at best we see no rally fuel >=6,800 and/or after Friday/Monday, and plenty of reason for downside.

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