Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are up 40 bps. The 10Y reached new highs of 5.28%.

MU -1% after earnings.

Resistance for today is again at 7,700, then 7,720. Negative gamma exists both above that level – but also below. Like yesterday, we remain cautious on rallies until after tomorrow’s NFP. As you can see negative gamma dominates going forward, suggesting the S&P500 is poised for volatility.

Despite the rising yields, equity traders still have no interest in index put protection. We’ve harped on this the last several sessions, and it remains true today. Should this start to change (i.e. put demand increases), we think its will be a major signal of potential downside ahead.

Generally, single stock call skews (blue) are largely at highs, while put skews (yellow) are at lows. IV’s are starting to pick up into earnings season, which starts in earnest on 10/13.

Those low put IVs are a function of traders persistently selling puts below in the top stocks of the S&P500. This creates positive gamma below, which could be adding to the stability of stocks despite rising yields. One would think that there is a yield level at which larger non-options selling flows pick up, but the market seems unsure of that that level is. For now, this positive gamma does offset some of the negative SPX gamma, and so we are hesistant to express larger short positions while <Risk Pivot because dips have been so quickly bought. If, into higher rates, the VIX term structure begins to invert, and if SPX put skews pop, that may be the signal to press shorts.

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