Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are 60bps lower, suggesting the SPX is set to open on our key bull/bear pivot of 5,900.

TLDR: Long exposure >5,925, short exposure <5,900.

VIX expiration is this morning at 9:30 AM – watch for unusual ES movement into & around that time.

The idea with VIX expiration is that the removal of VIX positions can free up vols – and those vol positions. In this case, one could argue that its short volatility positions which have built up over the last month, as the VIX sank from high 20’s to 18.

Interestingly, the SPX gamma positioning is set for movement, too. Above 5,925 we currently see “clear skies” to 6k. Below 5,900, we see no material support until 5,800, and there is a large 99th percentile negative gamma 0DTE put strike at 5,875, which could act as a downside accelerator for today.

It is admittedly slightly harder to complain that the vols are now too rich. Realized vols are coming in, such that the VIX (18) is now above 1-month SPX realized vol (15%). Historically the mean between VIX and 1-month RV is 3.5pts.

At-the-money SPX vol is still just 15-16% for any dates out past this week, as shown here. That suggests there vol premium is still too small – and, again, if we had a ton of positive SPX gamma then we’d be saying something like “big positive gamma will suppress realized vol and so implied vol should come in”. Currently, thats not the case.

Stepping away from the great bear debate – equity correlations continue to break down. This may present trading opportunities as vols dislocate. Consider, for example, stocks with high relative IV’s like AAPL, ORCL, COST (red zone) vs stocks with low IV like MSFT, TSM, BA (green zones). There may be opportunity to gain S&P long beta by selling options higher IV’s and buying those with lower IV’s.