Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are 20 bps lower today – the last trading day of August.

Oil is +3.5% as tensions in Iran ticked higher.

The big dynamic is the market is now pricing in a 60% probability of a Sep hike vs 40% pre-JHole.

On Friday, SPX gamma for this week was projected to be negative <=7,700. What we see is that is now positive, suggesting traders sold options post-Warsh. This appears to be the options market monetizing a small uptick in volatility, with seemingly no concern about a rate-induced selloff.

Our idea into NVDA/Jackson Hole was that the equity market would break into a new trend into Sep OPEX. Now we see a market that has resorted back to 7,700, and is much more focused on forward macro prints like Friday NFP, mid-sep CPI, etc. Given this, we will look to play mean reversion on the index side, buying dips & selling rips until/unless the SPX breaks <7,650 Risk Pivot – at which point we’d add to shorts. We will also remove any long Sep index call positions in favor of shorter term more tactical trades.

The “likely hiking” situation has shoved traders back into puts for bonds, as seen in IEF, LQD, and to a lesser extent TLT. We also so XLF shift from a call-sided stance into ATHs, to a more neutral stance. The lift in put skew in IEF/LQD vs TLT is interesting (and could be short term noise) as Bessent was working quite hard to jawbone the long end treasury rates lower.

There are a few key earnings this week including DELL (Tues) & AVGO (Wed). We still see traders as leaning towards calls into these top stocks, as you can see in the plots below. Each dot is a top-25 component of the S&P (left) & Nasdaq (right). You can see most of the components are at the top left, which is a low IV, call skewed expectation.

What is interesting about this moment is that NVDA had great earnings, pushing the stock to 230 on Friday before is closed down to 218. If AVGO and DELL inspire similar confidence, could we start to see a re-emergence of the tech trade while the S&P components remain stuck in a rate-quagmire?

Here is the VXN (Nasdaq VIX) – VIX, and you can see there was a massive divergence between the two as tech stocks ripped higher into June, and then collapsed in July. The VXN/VIX relationship is now “back to the mean”, but remember that the Nasdaq has fundamentally changed its constituency for names like SPCX, and upcoming Anthropic IPO’s (rumored for Oct).

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