Macro Theme:

Key dates ahead:

Founder’s Note:

ES futures are +50bps, NQ +130bps.

There is not much going on with the 0DTE space today, but we do see layered non-0DTE positive gamma above 7,500. This is resistance into 7,520 for today, and likely tomorrow. Tomorrow evening we see GOOGL & TSLA earnings, which may serve as a market catalyst. Underneath 7,480 (Risk Pivot) we see much less positive gamma – and even pockets of local negative gamma. This implies price action could be slippery <7,480, which is consistent with your views from recent notes. For today and tomorrow we anticipate more mean reversion (dips bought, rallies sold), and we probably feel a bit more conviction with selling very short dated calls into the blue zone marked below (vs shorting puts <Risk Pivot).

There is certainly a tension in the air, encompassed by non other than Jim Cramer saying last night: “Miserable close… Miserable market for the moment. watch tonight….” Meanwhile, SPX was off only 19 bps yesterday. We would feel a great deal of vindication from a big SPX drop, as we have been flagging “spasm risk” for 1-2 weeks now, and that has really only manifested in tech.

We often resort to finding “truth” about emotions in the volatility space. If traders are truly concerned about end times it should start to show in the vol surface. Here is 9/18 skew from last week vs today, and you can see via the change that put skews are up ever-so-slightly (<=1/2 vol pt) while call skews are down about 1/2 vol point. That is certainly a “bear steepening” but its hardly panic. ATM is flat.

What about NDX? We’ve been complaining about NDX vols being out-of-whack vs SPX, and they are showing some small signs of normalization. In this case you can see the ATM or belly of the skew coming in from last week. This is not panic.

The read here is that we still work about spasm risk but we do not want to lean into shorts until Risk Levels are broken. We need the proverbial “shot across the bow”, and we think that probably requires a negative take after some tech earnings.

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