Founder’s Note: Thu, December 05, 2024 at 7:00 AM ET
Macro Theme:
Key dates ahead:
- 12/5 Jobless Claims
- 12/6 NFP
- 12/11 CPI
Our primary risk signals signal long of equities while SPX >6,000 with an upside target of 6,050, then 6,100. We are neutral 5,900-6,000& <5,900 we flip to risk-off.
11/28: We prefer IWM/DIA to SPX/QQQ due to higher anticipated volatility into year end, but we still use SPX 6,000 as our equity risk on/off barometer.
11/22: Should there be a significant geopolitical escalation, we are on watch for an increase in put buying, and negative dealer gamma. That could invoke higher downside volatility on a break <5,900. In this scenario, we see 5,500 as major long term support.
Key SG levels for the SPX are:
- Support: 6,050, 6,035, 6,000
- Resistance: 6,050, 6,074, 6,100
- As of 11/22:
- Long equities if >6,000
- Short equities if SPX <5,900
QQQ:
- Support: 510, 505, 500
- Resistance: 520, 525
IWM:
- Support: 240, 235
- Resistance: 245
Founder’s Note:
Futures are flat ahead of 8:30AM ET Jobless Claims.
Let the record show that BTC broke over 100k, currently at 102.5k – this speaks to the “risk on” fervor of the current market. Everyone is seemingly now long assets – the skill will be knowing when to get out of the risk-on pool.
Powell yesterday gave bulls a shot in the arm, which pushed the SPX up into 6,086. That leaves the overhead target of 6,100 easily in reach for today, with primary support at 6,050. We see no major support/resistance between 6,050 & 6,100, and Trace is reflecting a low 35% Stability reading. That suggests equities have some wiggle room following this AM’s jobs data. Contrast this versus the 0DTE straddle…
which is just $17.3/28bps with an IV of 11.4% (ref 6,085). We believe that this is the lowest full-session straddle price since the Covid Crash.
Now, our friend Pod correctly points out that the 0DTE Condor is back (yellow boxes), with some 4k contracts per leg. This adds to the aforementioned support/resistance of the 6,100 & 6,050 zones – for today.
However, zooming out, we think that its time to start buying some hedges as this low IV threatens to cause some short-term tremors.
Before we dive in, well set the stage by saying traders are relatively hedged for tomorrow’s NFP print (IV’s at 11.2% are hardly large). After that, we see SPX term structure at major lows. So, today’s record-low 0DTE straddle pricing is a way of saying “today’s data doesn’t really matter – its all about tomorrow”. Again – tomorrow is just relatively high – traders are hardly panicked about NFP.
This also highlights the value of 0DTE’s, you can hedge the known data print (NFP, tomorrow AM), and don’t have to bother with longer dated downside protection.
Back to the bigger picture, and “vol tremors”.
We saw a vol tremor yesterday into the close, wherein the 0DTE straddle was ~$10 with the SPX at 6,065 heading into Powell’s speech. His dovishness triggered a market jump, resulting in a 20-handle pop in SPX levels. We also saw the hallmark “stock up, vol up” into the close, as you can see via VIX & SPX, below. “Well VIX measures 30 day options” we hear you say – but recall on Tuesday we flagged that 1-month 25 delta (6,100 strike) calls had IV’s at 9.8% – well those calls are now up 40% ($50 to $70) with an IV of 10.05%
This higher vol suggests traders are repricing the upside (and a short-call cover), and you can see that via the Fixed Strike Matrix. To simplify, we have 1/2/24 exp SPX skew, below, which illustrates that since Tuesday night the put wing is lower (red arrow), and the call wing (green) has a subtle bid.
The reality is that there is a ton of short-call supply from large systematic overwriters (like JEPI), and so we believe its hard for the SPX to sustain a
pivot
to call skews (i.e. green arrow up more).
The other reality is there are huge positions at 6,050, and 6,000, which should provide stopping points for any downside move.
However, this low IV is exposing the market to a lot of “jump risk”, like we saw in mini-form yesterday. These implications were all laid out in Friday’s note – the essence for short term traders being that you may be expecting sleepy small moves (10 handles) and we get something bigger (20 handles) – and if a tail print comes out of today’s jobs data, tomorrows jobs data, or 12/11 CPI – that jump can be even larger.
Bigger picture, if we chew through those data points without issue, we are likely to see IV’s fully compressed just as we hit a massive 12/20 options expiration. This syncs up to allow for volatility to expand, which could really hurt the full-tilt bullish sentiment.
|
/ES |
SPX |
SPY |
NDX |
QQQ |
RUT |
IWM |
---|---|---|---|---|---|---|---|
Reference Price: |
$6098.93 |
$6086 |
$607 |
$21492 |
$523 |
$2426 |
$240 |
SG Gamma Index™: |
|
3.666 |
0.288 |
|
|
|
|
SG Implied 1-Day Move: |
0.58% |
0.58% |
0.58% |
|
|
|
|
SG Implied 5-Day Move: |
1.95% |
1.95% |
|
|
|
|
|
SG Implied 1-Day Move High: |
$6133.88 |
$6120.95 |
$611.14 |
|
|
|
|
SG Implied 1-Day Move Low: |
$6063.28 |
$6050.35 |
$604.1 |
|
|
|
|
SG Volatility Trigger™: |
$6052.93 |
$6040 |
$604 |
$20470 |
$519 |
$2435 |
$239 |
Absolute Gamma Strike: |
$6012.93 |
$6000 |
$605 |
$21000 |
$520 |
$2400 |
$240 |
Call Wall: |
$6112.93 |
$6100 |
$610 |
$20475 |
$525 |
$2500 |
$250 |
Put Wall: |
$5812.93 |
$5800 |
$604 |
$20800 |
$465 |
$2320 |
$225 |
Zero Gamma Level: |
$6017.93 |
$6005 |
$601 |
$20646 |
$518 |
$2420 |
$239 |
|
SPX |
SPY |
NDX |
QQQ |
RUT |
IWM |
---|---|---|---|---|---|---|
Gamma Tilt: |
1.518 |
1.29 |
1.972 |
1.189 |
1.027 |
0.978 |
Gamma Notional (MM): |
$1.205B |
$1.206B |
$22.495M |
$401.639M |
$3.516M |
$82.534M |
25 Delta Risk Reversal: |
-0.024 |
-0.017 |
-0.027 |
-0.011 |
-0.013 |
-0.011 |
Call Volume: |
515.53K |
1.21M |
9.744K |
855.017K |
9.202K |
336.009K |
Put Volume: |
934.971K |
1.804M |
13.145K |
1.055M |
12.114K |
279.285K |
Call Open Interest: |
7.645M |
6.105M |
70.103K |
3.494M |
324.496K |
3.897M |
Put Open Interest: |
13.94M |
12.311M |
95.161K |
6.385M |
536.751K |
8.234M |
Key Support & Resistance Strikes |
---|
SPX Levels: [6000, 6100, 6050, 5900] |
SPY Levels: [605, 610, 600, 615] |
NDX Levels: [21000, 21400, 21500, 20800] |
QQQ Levels: [520, 510, 500, 525] |
SPX Combos: [(6348,90.99), (6300,98.53), (6275,77.49), (6263,77.06), (6251,98.82), (6226,88.07), (6208,84.33), (6202,99.79), (6190,82.31), (6178,97.02), (6172,90.88), (6160,97.55), (6153,71.38), (6147,99.62), (6141,91.41), (6135,89.83), (6129,97.21), (6123,99.75), (6117,94.38), (6111,99.53), (6105,97.17), (6099,99.98), (6093,98.91), (6086,79.66), (6080,92.94), (6074,96.67), (6068,73.65), (6056,96.93), (6050,93.12), (6038,73.54), (6032,82.32), (6013,69.75), (6001,88.57), (5989,76.90), (5983,77.41), (5953,82.21), (5922,70.59), (5849,76.10), (5800,87.11)] |
SPY Combos: [608.74, 605.12, 606.33, 619.01] |
NDX Combos: [21557, 21600, 21772, 21965] |
QQQ Combos: [519.97, 521, 498.26, 529.79] |