Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are 60 bps lower, giving up post FOMC gains after rejecting from 5,700 resistance overnight. That same 5,700 area was rejected during yesterdays cash session, too.

Before we dive into levels, the story here is that the FOMC didn’t do much to clear the air. Trump followed up with tweets about needing to cut rates ahead of 4/2 (he again marked that date). We’re not macro guys, but tweets certainly cloud the picture and reinforces 4/2 as the date to watch. This matters to us in options space because it backs the idea that implied vols cannot fully release until we clear the “known unknown” of tariffs. Sticky vols prevent a full “risk on” rally.

Ultimately post-FOMC leaves our view unchanged from the Macro Note points above, and discussed yesterday.

Levels TLDR:

• 5,700 – 5,720 resistance is reinforced for today
• 5,615 is key support (Condor, SPY 560)
• Below 5,600 is negative gamma, implying slippery downside into 5,565
• 5,500 – 5,565 remains major support into 3/31

Looking at TRACE, we see not only that big 5,700 positive gamma resistance bar, but we see Captain Condor back, too. As part of their condor they have a ~3,800 lot call spread at 5,720 x 5725 – that 5,720 is just above yesterdays intraday high and alights closely with SPY 570 (a giant SPY gamma bar).

The put spread component of the condor is at 5,620 x 5,615, and below that final support is large negative gamma into 5,565.

On net, the FOMC did serve to reduce implied vols. At last nights close we commented that it was a full smackdown of SPX IV’s, but that has moderated some this AM, as fixed strike vols now show 1/4 to 1/2 pt of vol reduction vs Tuesdays close (vs -1 to -2 pts last night). On net, this reflects FOMC passing without much to-do (i.e. event vol gone).

Lastly, in terms of tomorrow expiration we are pretty neutral. This is because put prices/positions have moderated vs calls, which reduces an imbalance to release (i.e. lots of put hedges have to be covered). As of last week the data below was showing +70-80% of delta value tied to puts vs 50-60% now.

This neutral view syncs with the idea that vols are unlikely to discharge until 4/2, and the monster JPM strike has some pull into 3/31, which ties to SPX to prices in this 5,600 area. You could also look at this as put-decay having been pulled forward by VIX expiration and FOMC.