Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are +30 bps after yesterday’s -3% beating. JOLTS on deck at 10AM ET.

TLDR: In the short term (next 1-2 days) we see signs of downside exhaustion with volatility risk premium really elevated (see last nights note). Any sign of a bounce will create chase-y upside negative gamma + vanna flows, allowing for nasty upside moves. Ultimately, though, we think those upside moves are great setups for new shorts. CPI tomorrow is likely to retain some of event-vol, too, which could throttle some upside for today.

As we laid out in last nights note, we can certainly get sharp bounce here due to the elevated vol premium and negative gamma above, but we’d view any such rally as a “dead cat” until/unless volatility can be cleared from the system.

That clearing requires either a signed tariff deal (burn the puts) and/or a clearing of all of this

put gamma

(remove the puts).

From our chair in options land,

put gamma

is the main driver of flows. You can see this via the SPX combo strikes, which nets SPX+SPY

call gamma

against

put gamma

. All strikes are negative in this snapshot because all strikes within ~10% of current SPX prices are net puts.

This informs us that its a large negative gamma complex, compounded by implied volatility expanding and collapsing. This elevated IV heightens the magnitude of dealer hedging flows (more to buy into rallies, more to sell into declines).

Ultimately we see massive support down at 5,565 to 5,565 (JPM strike expiring 3/31). March expirations (VIX 3/18, 3/19 FOMC, OPEX 3/21, Q END EXP 3/31) line up with a possible tariff deal, making the yellow zone below a large target for both price & time.

A final plunge into the 5,500 level would likely provide a “blow off top” in volatility. At this point many vol metrics are quite stretched to the upside, but they are obvious tops. For example VVIX hasn’t yet taken out Dec FOMC or Aug crash levels.

There are a bunch of single stocks/sectors that are hitting options-oversold conditions.

Below is skew rank vs iv rank, with all stocks >25k options volume listed. We know its a very noisy plot, but it illustrates a key point of almost all stocks having a ~0 skew rank (max put prices relative to calls vs last year), and many having high IV ranks (bottom right plots). You can see IV & skew rank in EquityHub for stock specific details, as well as the VRP scanner.

The other thing of note here is the SPY/QQQ IV rank is ~65%, with skew rank ~15%, which backs the idea that we’ve not yet hit “max pain”.