Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are 10 bps higher after the weekend which saw a massive OPEX on Friday, and then the US engage Iran.

Crude oil is notably +80bps – which is obviously a top barometer for Middle East tension.

Given that the massive OPEX unwind bleeds into today (positions are assigned on Saturday), then we are careful to not read to much “geopolitics” to the AM price action. Clearly the market is not pricing in doomsday, but there are likely to be some heavy hedging flows shifting and influencing price action.

The equity market still has this giant shock absorber of the JPM call at 5,905, which is supplying about $1bn of positive gamma. This suggests that there is dip buying into 5,900 – but as we march toward 6/30 OPEX the charm, or decay, of that position should increase the buying into that strike. Consider that right now the 6/30 5,905 call is priced at $102, which signals ~$35 of decay. In theory this adds positive deltas to the market, as dealers short futures (vs their long JPM call) can be bought back. Recall too that gamma is the highest for at the money options and increases into expiration – so if the SPX starts to sniff <5,950 then we think a 5,900 pin becomes all more likely. For this reason we continue to like 5,900 put spreads or put flies for <=6/30 expirations.

The added element here is the meme-fever happening in the IPO & SPAC space. We discussed CRCL as an example on Friday night – and if that type of exuberance fades it could add some selling pressure to the market.

Lastly – we see a lot of trope about “vanna”. “Vanna flows are over after OPEX” is what you will often see on X, for example. For whatever reason, these pundits see vanna as only a mechanism that occurs into an expiration, presumably working to lift/support markets.

Here is what google will tell you about vanna:

“In options trading, Vanna is a second-order Greek that measures how an option’s delta (the rate of change of the option price with respect to the underlying asset price) changes as implied volatility changes. Essentially, it quantifies the sensitivity of an option’s delta to changes in implied volatility.”

The definition says nothing about options expiration…

But the deal here is that the US has directly engaged with Iran – thats clearly an escalation vs where we were last week. I have NO idea what that looks like going forward, but it clearly adds an element of uncertainty to this market. Should you panic-bid VIX calls? No. Does that mean vol should likely be a it stickier to higher for the next several days? I think so. If we are right, and vol gets a bid then vanna becomes an increasingly important flow because IV going up can be an amplifier of dealer flows. Generally speaking higher IV is a dampener on the SPX.

In this case, we do have the JPM “shock absorber” until 6/30, and so we have think about the path here of what can happen post 6/30 with that supportive flow expired.