Macro Theme:

 

 

Founder’s Note:

Futures are ~60bps lower ahead of this mornings SPX AM contract expiration, and PM (standard) expiration for all equities + SPX PM options.

As per yesterday’s AM note (and our Macro Theme(s) at the top of AM notes), we remain neutral in the 5,900-6,000 zone, and flip to bearish <5,900.

The result of expiration should be a reduction in market stability, as you can see that after 9:30 (when SPX AM contracts expire) gamma is reduced, particularly near the 5,950 area (red arrow). We can also see that the positions near current SPX prices (~5,920) are a mixed bag of both dealer long & short positions (red box). This, vs recent positions which were strong clusters of blue positive gamma bars.

This is a signal that we should be looking for relatively high volatility today, with key levels “spread out”:

• support at 5,900 & 5,850
• resistance at 5,950 & 6,000

We have been very focused on the 6,000 strike as a source of stability into today’s expiration, and the pull of that strike clearly broke down yesterday as Powell dropped 3PM hawkish rhetoric.

That seemed to spark non-0DTE call selling (orange) in the S&P500 complex, which combined with 0DTE put buying (light blue) to pressure markets lower. That negative delta flow totaled ~$4bn – a strong negative number.

In regards to those 0DTE put flows, the TRACE charm map from 2:50pm yesterday (just before Powell) shows the strongest “node” at ~5945 (black box) which was an absolute magnet after Powell’s bearish comments. We’re not proclaiming we could have predicted a negative reaction ahead of Powell, but we are saying that the 0DTE put flow pushed the market right into the highest zone of 0DTE decay.

That leads us to be a bit less bearish about yesterday’s price action vs if the aforementioned -$4bn in

HIRO

flow was purely non-0DTE puts. This is because longer dated puts adds short-stock hedging obligations to dealers books. This all makes us a bit less worried about recent weakness.

In Wednesday’s AM note we dug into the lack of bearish positioning in the S&P500, and we that positioning as very little changed for today. Yes, Powell’s comments were not bullish, but the pop in volatility times exactly with a shift in positions around OPEX. Our view that <5,900 is a bearish zone is more of a presumption that put buyers will step up into what is currently a flat gamma environment, and force positioning it into negative gamma. Put buyers are really not around at the moment.

While we aren’t macro analysts, a quick check of 2Y and 10Y rates shows very little is changed. If rates make a big jump, we’ll be on the look for high volatility. Further, Bitcoin (our favorite proxy for forward vol) remains at $90k (flat to Powell’s comments).

All together, we remain of the view that NVDA’s earnings will be the catalyst into the end of the year. We remain in the “Santa Rally” camp, and the beauty of this volatility landscape is that its very cheap to express bullish views. Being fair, its also cheap to express bearish views, too.

We remain focused on SMH with the idea that positive NVDA earnings on 11/20 could re-spark the AI trade. Here is 12/27 SMH skew, which is at 90-day lows.

Further, via our EquityHub stats, you can see IV Rank is a lowly 28% (it would probably be lower without NVDA ER next week), and Garch Rank just 9%. Just like with yesterday’s SPX straddle being at max lows of 40bps, we read SMH vol as having to shift higher into end-of-year, with NVDA as the trigger.

Finally, TSLA.

It was our favorite long the AM after the election (read here), and we hit the brakes on the trade earlier this week due to very rich skew. From Monday’s AM note:

Staying true to the plan, we’ve seen TSLA pull back from $340 to $310, and IV has dropped sharply into OPEX. You can see this below with 12/27 skew from Monday (gray line) to today (teal). This signals that calls are more reasonably priced now, which makes TSLA more available for upside. On this note, while at-the-money IV has come in, you can see there is still a heavy skew (Skew Rank = 99). For this reason we like call spreads as a way to play upside, but we are only going to carry a limited position until given an “all clear” from NVDA on 11/20.