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Informe Option Levels

Macro Theme:

Key dates ahead:

  • 4/30: PCE, Earnings: META, MSFT
  • 5/1: ISM
  • 5/2: NFP

4/29: Based on the formation of light positive gamma >5,500, we look to be net long of stocks while SPX holds that level. We recommend short dated (May exp) calls or call spreads. This does not invalidate the view of owning longer dated put hedges (per 4/25 update).

4/25: <=25 delta 1-month S&P500 puts/put spreads make sense on a risk/reward basis given ATM IV in SPX is ~25%, which is at or below short term realized vol. This is not a call for a market decline, as much as we see the potential for that outcome, and the price to play it seems reasonable. This is true particularly given next weeks earnings and macro prints.

Key SG levels for the SPX are:

  • Resistance: 5,700 (no clear resistance level >5,500)
  • Support: 5,500 (no clear support level <5,500)

 

Founder’s Note:

Futures are -20bps ahead of CORE PCE & PM earnings from MSFT & META.

How big of a deal is PCE? The 0DTE straddle is $50.9 or 91bps at a 34% IV – this reads as only a bit elevated vs previous sessions.

In terms of levels, we look to remain long of equities with SPX >5,500, and short below due to an onset of negative gamma. There is a bit more positive gamma filling in around 5,550, but that likely won’t contain any reaction to this AM’s PCE print. Therefore bulls have the baton for the moment, and a benign PCE print likely adds a lift to equity prices. Ultimately we’re in “wait and see mode” through this upcoming data.

One of the more interesting developments this week has been that of SPX IV’s, which have been quite sticky. Below is the SPX fixed strike vol for this AM vs last Friday – and as you can see its slightly higher. Granted there is the PCE data point this AM, but these IVs are slightly higher going well out in time. This suggests that the SPX risk-premium has now been fully drained, as one would think the IV’s would continue shifting lower with the SPX closing at ~1-month, pre-liberation day highs. This does support the notion that owning some longer dated puts makes sense (vs owning puts into a declining IV regime, which is taxing), per our recent notes.

The value of owning puts here (vs waiting for <5,500) is that if there is a “shock headline”, we worry that a lack of liquidity could create jumpy downside.

Typically we do not offer earnings insights here, but the larger macro equity picture awaits the upcoming key data.

We thought it would be interesting to compare GEX for META, MSFT and HOOD – all reporting today.

In order to find a potential earnings trade, we need to find an imbalance in positioning & skew that seems exploitable. The exercise here is to evaluate positioning, but one would have to look at skews after the market open to price up trades, and evaluate risk reward. Needless to say, this is not investment advice.

Focusing on positioning, we can see a tale of 3 different positions:

1) MSFT has clear positive gamma >=400, which seems like a solid upside resistance area. To the downside we see no major strikes offering support. The earnings move is 4% with the stock at $395, with is a ~$15 move. Short term calls seem a bit rich relative to recent history, but that recent history has been marred by massive stock downside. Through this lens, we would look at selling calls spreads/call flies – and on the more “lotto” side of things long put spreads or put flies.

2) For META – its the opposite. At $550 with a 7% implied move, there are fairly large dealer positive gamma strikes below, implying support in the 500-525 area. While the upside does have a fairly large cluster of positive gamma strikes, there are also 2 large negative gamma strikes at 575 & 600. Contrary to MSFT, short put spreads or put flies could be viable, but a condor could be reasonable which would profit if the stock stays >525 and <575.

Finally is HOOD, which has a 10% implied move with the stock at $50. Here we have an interesting dealer long put vs short call aesthetic, implying some dealer buying below – and having to buy above against their short call strike. There are not many positions over 50, but the GEX gets increasingly more negative into higher strikes. In this situation, we likely wouldn’t want to touch being short upside calls. With this, we’d look at trades which lean on the $40 area as support. HOOD also tends to carry an elevated put skew, which may add to trading opportunities.

 

/ES

SPX

SPY

NDX

QQQ

RUT

IWM

Reference Price:

$5552.74

$5528

$554

$19427

$475

$1965

$196

SG Gamma Index™:

-0.284

-0.125

SG Implied 1-Day Move:

0.78%

0.78%

0.78%

SG Implied 5-Day Move:

1.95%

1.95%

SG Implied 1-Day Move High:

After open

After open

After open

SG Implied 1-Day Move Low:

After open

After open

After open

SG Volatility Trigger™:

$5524.74

$5500

$550

$19380

$474

$1940

$205

Absolute Gamma Strike:

$5024.74

$5000

$550

$20000

$470

$2000

$190

Call Wall:

$5674.74

$5650

$560

$18200

$485

$2060

$196

Put Wall:

$5224.74

$5200

$545

$19000

$450

$1850

$190

Zero Gamma Level:

$5562.74

$5538

$553

$18945

$471

$1975

$216

SPX

SPY

NDX

QQQ

RUT

IWM

Gamma Tilt:

0.954

0.835

1.351

1.031

0.930

0.474

Gamma Notional (MM):

‑$221.988M

‑$281.232M

$4.389M

$110.634M

‑$8.734M

‑$858.223M

25 Delta Risk Reversal:

-0.079

0.00

-0.062

-0.056

-0.066

-0.048

Call Volume:

437.942K

1.393M

7.493K

685.213K

14.404K

193.079K

Put Volume:

815.20K

2.028M

5.911K

900.796K

24.558K

722.744K

Call Open Interest:

7.858M

6.891M

68.109K

3.952M

296.596K

3.688M

Put Open Interest:

12.81M

11.201M

65.011K

5.724M

436.715K

7.827M

Key Support & Resistance Strikes

SPX Levels: [5000, 6000, 5700, 5500]

SPY Levels: [550, 560, 545, 540]

NDX Levels: [20000, 19500, 18200, 19000]

QQQ Levels: [470, 480, 460, 450]

SPX Combos: [(5766,85.43), (5667,84.31), (5617,91.33), (5595,80.88), (5590,71.55), (5584,72.58), (5573,69.13), (5567,90.00), (5551,69.76), (5468,77.41), (5446,69.41), (5435,70.77), (5418,80.36), (5385,72.19), (5368,90.84), (5335,73.42), (5319,81.26), (5285,69.27), (5280,77.45), (5269,88.20)]

SPY Combos: [538.18, 558.01, 528.27, 562.97]

NDX Combos: [19816, 18786, 20010, 19602]

QQQ Combos: [450.21, 485.17, 460.13, 489.89]