Macro Theme:

Founder’s Note:

For those of you trading intraday moves there has been some action, but for anyone with >1 day time frames its been, well, boring. The S&P500 just can’t pull away from 5,600, as evidenced by price action over the last several days. 5,600 remains the biggest strike on the board, and will likely offer local positive gamma into September.

We now see a large positive gamma strike at 5,545, the bulk of which is due to a short 8k of the 5,545/5,530 put spreads for Tuesday, 9/3. Someone clearly trying to capture some weekend decay, and we suspect these folks aren’t the only ones betting on “attrition” over the holiday weekend.

Into Tuesday, we think this position would offer some further downside support should the SPX slide down toward 5,550. We say “further”, because you may recall from yesterday’s note this theme of positive gamma support added to strikes below 5,600.

The 5,600 positive-gamma-baton could be passed to 5,700, a strike area which contains a healthy dose of dealer positive gamma. That positive gamma is driven by traders selling calls at overhead strikes.

The issue here for another equity leg higher is this idea of “call selling”, which seems to be central to traders view of this market.

Below is 1-month skew for today (teal) vs Tuesday night (gray), the day NVDA ER’s. You can very clearly see that upside strikes have lost implied volatility (green box), while the downside has not. We take this as NVDA’s earnings not being bad enough to short equities, but clearly not inspiring bulls to push for new highs.

So…the problem for bulls here is “What’s the catalyst?” Short vol has clearly been a big trade that likely aides in pushing equities higher, but that fuel is draining off. Clearly the downside doesn’t want to take hold, either, as recent bouts of slippery downside quickly revert back into 5,600.

The short term trade here may therefore be short vol, in through next week, until the scales directionally tip to the bullish side >=5,620 and bearish side <5,500.