Macro Theme:

 

 

Founder’s Note:

Futures are fractionally higher after strong results from GOOGL (+5.8%) last night. We note AMD missed earnings, and is down 8%.

There are a bevy of major earnings tonight, including: MSFT, META, COIN, CAT & SBUX.

For today, the large SPX gamma remains in the 5,800 to 5,850 range (green box). We are seeing positive gamma build >5,900, which plays to the idea of traders selling calls at higher strikes when given the chance (ex: yesterday’s move to 5,845). On weakness, we see traders selling SPX puts, which offers support at downside strikes.

Traders selling options keeps the S&P in a dealer-held positive gamma environment, which is why we remain bullish as long as the SPX holds 5,800.

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Equity indexes did manage to press a bit higher yesterday, with the Nasdaq putting in a new all-time-high over 18,700 (QQQ, candles). Bitcoin (red), which we highlighted as a proxy for risk assets, also surged to match all time highs.

We’ve highlighted the fact that call skews are remarkably low in the equity space, given the all-time-high price levels. Here is 12/31 QQQ skew, with ~5% upside calls remaining at 90 day IV lows. These lows are contrasted versus tail risk measures, which show equity markets are well hedged (see y’day’s note).

If you look past the potential FOMC/election risk(s), the equity setup seems very bullish, as despite the all-time-highs in stocks, traders have not yet started to bid up call options. Obviously you cannot just look past those events, as they do mark the potential to shift market paradigms.

There is also one other interesting position – that of long bond put holders. If there is currently a consensus trade, its that long-end rates are going to go higher. We don’t know if that is true or not, but we do see that bond-ETF put options are very well bid. Below is 12/31 TLT put skew, which shows that <75% OTM puts have statistically rich IV’s (IV above 90 day range, below), and as seen in an IV rank of 69%.

If you look at our risk reversal metric for TLT, which measures 1-month 25-delta call IV vs the equivalent put, you see that it is nearing the lows matched during the 2022 rate spasms. Bonds & bond vol is all going to shift a lot starting Friday (PMI) and next week, and we can’t help but wonder if traders are, at least in the short term, in an overcrowded bond short.