Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are off 1% with JOLTS and ISM at 10AM ET.

The big thing on our radar today is the JPM collar roll, and the massive 5,565 put strike expiring today. This trade is likely to invoke a lot of volatility/movement today – in fact we think it may be part of the reason for the large futures movement this AM.

5,565 is a HUGE gamma strike, and is seen as the giant red bar on the left. The TLDR here is this: We think that the JPM dealer is short deltas against this position, and that the roll to the new trade made generate intraday buying pressure.

With futures down 1%, the value of this 5,565 put has surged. The larger value indicates to us that the roll may matter more, as there are larger hedging flows associated with it.

Here is what to look for today:

At some point, typically mid-day, we are likely to see the initial print of the new June collar. This will be +40k contracts tied to SPX June 30th exp options contracts. We are likely to see a lot of large, usual 0DTE flow just before & after the print, and this will likely invoke some unusual SPX movement (i.e. non-options people asking “what is the news!?!”). Into the end-of-day there is likely to be a lot of MOC flow, as the MOC trading cleans up both past & present dealer hedges (the current deep ITM put likely has hedges). Finally, from 4-4:15PM ET the “final collar” is printed. This final print accounts for the SPX price change from when the ~mid-day print goes up, to 4PM ET.

There is likely to be a lot of ink spilled this AM trying to break down exactly what the dealers are set to do. Quite frankly, its tough to know exactly how and what the JPM dealers will do, because we’ve only once seen the JPM long put expire (or threaten to expire) in the money (March ’20). Further, there JPM dealers are incentivized to tweak their timing and execution to keep knowledgable traders off guard.

So what exactly is the signal that the print is going off, today? You will likely know it when you see it.

Below is the chart from the Sep roll, wherein the SPX opened on the JPM 5,750 short call. As you can see, around 2PM ET, the SPX suddenly tanked 1%, after huge 0DTE put flow hit the market. This put flow was very easy to spot in

HIRO.

When the SPX hit ~5,700, the new collar printed & the 0DTE put flow stopped. Huge positive delta 0DTE flow ripped the market +1% to the days highs, closing above the JPM 5,750 contract at expiration.

We did not have Tape back in September, so now you will be able to see those new June contracts print in real time, too. So – if you see unusually large

HIRO

flow, particularly 0DTE, then be on watch for the new collar prints.

In this case its likely the dealers are carrying a lot of short hedges against todays large dealer-short 5,565 put. For this reason, we think there could be some buying pressure into the 5,565 strike.

Turning to vols, the jump higher in IV looks pretty legitimate. Below is the fixed strike SPX change from Friday’s close to this AM, and you can see its a +1 pt shift across the board for <=1-month exp options. This stretch in vols does sync with the negative gamma pressure from the JPM roll, and so we think there is strong evidence for a bounce today in tomorrow as the dealer hedging pressure comes off, which grants vols a bit of relief.

As we discussed in the Sunday Note, GEX may jump from quite negative to positive following todays expiration. This is seen from the current GEX curve (blue) shifting to our GEX projection for 4/1 (pink). This screenshot if from our new EquityHub, launching 4/2.

Tomorrow, as the dust settles from today’s roll & the big vol jump, we will update our projections for >= 4/2 tariff day (and our “Macro Theme” notes). However, if you were in put structures tied to 3/31 and/or post tariff day, we think it makes sense to roll those puts down in strike and out in time, as to monetize them into this strong equity decline/volatility jump. We currently do not see a lot of long put positions (dealer short) <=5,500, which signals a short term equity low.