Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are off 35bps.

TLDR: Shorting short dated options today makes little sense given the pricing. We also note that while gamma is positive, there are no major MM strikes on the board until 7,635. Further, we breached the Risk Pivot yesterday, which had us reduce our equity position. Support for today is a 7,700, then 7,635. Resistance is at 7,720 then 7,775.

A highlight of yesterday’s message was how low short dated volatility was, with the 0DTE straddle coming in a just 29bps. Well, today’s SPX straddle is not much higher at $27.3/35bps (ref 7715) which bets again on low volatility. This, despite yesterdays cash move at 50bps and the overnight ES move was 60 bps.

Adding to the intrigue, VIX expiration is tomorrow and we have made the argument that VIX Exp can be a “pivot” for volatility (see chart in yesterday’s note). Today is the last day that August VIX options can trade, and they settle at 9:30AM EST tomorrow. Our original thought was that VIX Exp would be supportive of equities yesterday and today, too, because traders would try and keep vol suppressed.

The fly in the bullish ointment, so to speak, is rates. US20Y has made fresh highs dating back to 2008 (GFC), and shorter duration are higher, too. That move higher seemed to coincide with oil make a +2% intraday move. A credit analyst we read also wrote essentially that hyperscaler debt is so large it is now competing with longer duration Treasuries. While we cannot comment on that, we can bet that higher rates are probably a drag on stocks.

Overall this bond move, and the “higher than expected” volatility was not a massive move, and it plays into a dealer gamma position that is positive. That being said, shorting options yesterday not a good idea, and that likely rings true today. While the Risk Pivot was breached yesterday (7,775), the environment remains one of positive gamma below. Given this, we do not want to yes press shorts in a longer-dated fashion. That being said, we do own some downside protection per our notes from last week as we think their carry remains low given the markets focus on JHOLE, which holds up vol for expirations >= end of August.

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