Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are off 30bps with no major news on the tape for today.

TLDR: Bulls have the edge while the SPX is >5,925. We flip short <5,900.

In addition to the large positive gamma strike of 5,905 (JPM call), there is now a decent dealer positive gamma at 5,925 due to someone selling ~14k non-0DTE puts.

Below there, 5,850 is the target level. Above, we see no clear positive gamma until >=6,025. In that upside range small, but “pure” positive gamma emerges. That area could mark the onset a true “positive gamma regime” and lower volatility.

Today is the last trading day for May VIX options, with our “OPEX window” closing tomorrow AM on the cash open. We’ve documented many times how VIX expiration has impacted equity markets – note the SPX gaps/instability around March & April VIX exp.

Here is current VIX gamma, and what you will find under the hood is that market makers are short 120k of 16 strike puts, and short 117k of 20 strike calls. Fascinatingly, the VIX is sticking right between those levels…

I mean, if you were short the 16 puts and the 20 calls where would you want the VIX at expiration?

We project that expiration will mainly serve to reduce that negative gamma/short options position, as inferred by the next expiration projection (blue dashed line). Our general idea is that VIX can now unpin ~18.

We’ve been quite vocal about this expiration window being a bearish

pivot,

driven by the idea that Friday’s OPEX was one of the heaviest call expirations we’ve seen – combined with very rich call skews.

In fact, the latest piece from the CBOE places SPX calls skews in their 80% percentile highs (blue). So – forget our diatribes on stretched positioning and implied vol being too low/cheap: if you are getting into calls at these levels you are buying expensive options.

Does that mean you are wrong to buy calls? Well, not if the equity market keeps going up at +1% a day…but if you get anything less than 1% per day you may be hurt.

Many of you have likely tired of our bear thesis (we can’t blame you), with us marking Friday’s OPEX as the first trigger, and after 9:30AM ET tomorrow AM (VIX exp) it will be hard for us to claim any type of options expiration impact.

And, quite frankly, the buying over the last 3 sessions has been remarkable. This looks to us like some type of aggressive S&P

VWAP

buying algo, as the gains were so very linear. In fact, we just pasted the same black arrow (same size and angle) 3 times to “fit” the daily gains.

There is some type of joke in here about right angles not appearing in nature…like “random walks aren’t linear?”

The SPX is “only” up 1.6% from Thursday’s lows, but its up 16% from the lows put in the day after…***checks notes*** …April OPEX.

But we also flag the current SPX price: 5,950. We’ve been quite vocal about why the 5,900-6,000 area is a place where the rally could sputter due to the waning of negative gamma (ex: 5/12 note here) & potential onset of positive gamma.

The positions highlighted at the top of this note syncs with this idea of the rally running out of gas into 6k (we see “pure” positive gamma >6,025). Obviously 6k is another +1% from here, and that positive gamma is more of a suggestion that markets should get less volatile in that area, and more of a grind (vs +1% daily moves). For shorts to kick in we need momentum, and that appears to not be in place until/unless 5,900 is lost.