Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are +25bps with no major data scheduled for today. All eyes are on this weekends meeting with China.

Next week is CPI 5/13 & OPEX 5/16.

TLDR: For today, with no major news on the tape we think 0DTE traders will take another shot at pumping the SPX back into 5,700 (& SPY 570), taking the opportunity to harvest some vol into the weekend. VIA TRACE (below) we are already seeing more relative 0DTE positive gamma strikes (blue bars) than what we’ve typically seen, which should be supportive of equities. Short term implied vols are elevated for next week due to this weekends meeting, and CPI on 5/13.

Equities yesterday seemed poised for a break higher after a UK tariff deal, an apparent “green shoot” with China meetings this weekend, and Trump’s recommendation to “buy stocks”.

That intraday 1.5% rally faded sharply into the close, as it was unable to pass the light resistance of ~5,700 positive gamma – more specifically rejecting at SPY 570. That 5,700 area is also interesting as it marks the Liberation Day gap (red line).

What’s the best case with further green shoots out of this weekends China talks? The summary is that the major upside into next week seems to be capped in the 5,800-5,900 area, which is a light reduction from the 5,900-6,000 area we discussed pre-FOMC.

Diving in, with SPX we see several large positive gamma strikes at 5,900, and negative gamma (which helps propel upside), wanes sharply above that level.

Note that to the downside the GEX curve (blue line) portrays gamma as essentially flat into 5,500, and mildly negative below. This is a way of saying that there is not much downside SPX protection.

In SPY, we see one large positive gamma strike at 580, with positive gamma waning sharply above that level.

To the downside, contrary to SPX there are a lot of dealer short puts below, which we think spurs downside momentum into SPY 530.

With respect to vol, we feel compelled to note how quickly SPX realized vol (yellow) is declining, which validates implied vols (i.e. VIX, blue) bleeding lower. The 10-day realized SPX vol at ~16% backs out to ~1% daily SPX moves, and it feels unlikely to drop any further unless there is a deal which leads to the onset of positive gamma.

Under the hood things aren’t quite so stable. This is the daily SPX range, which is holding to a higher relative level. Think of yesterday’s session, for example, which closed flat vs the open but had an intraday range of +1%. The point here is that things not as calm as realized vol implies – and until material SPX positive gamma forms then it is hard to expect anything solid. This warrants, in general, owning options, and we continue to like playing short dated/weekly calls/call spreads vs long +1-2 month puts.

Aside from the index space, we are on Bitcoin Vol Watch. We’ve talked a lot about of Bitcoin vol lately, as it was so subdued in recent weeks as vol shot up in other assets. This morning we see BTC at +$103k, and the IBIT call skew has been increasing (highlighted below). This suggests that calls are rising in price relative to puts, but overall implied vol still seems to be low. We take this as a signal that BTC may simply warming up, and we don’t really want to be short of it until/unless the IV rank moves higher (to the area implied by yellow arrow). We note MSTR still plots to the lower center of this chart, and we are starting to see the X posts around “I put my life savings into MSTR/MSTY”…this could be a sign of higher IV’s ahead.

In this situation calls could make sense, or simply being long IBIT vs long puts (as put IV is low). At the moment we hesitate with using call spreads or short ratio trades, because if IV does spike with a BTC breakout we don’t want to cap “stock up, vol up” gains.