Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are flat, and vols are in ever so slightly, with Powell again on deck at 10AM ET.

As we flagged last night, Captain Condor is in with at 11k Condor at 6,120/6,125 x 6,055/6,050. These are our target levels for today – and we note that 6,120 roughly lines up with SPY 610 Call Wall.

The SPX Call Wall remains at 6,100 – and so the current weight of positive gamma sits in this 20 point range (6,100-6,120).

The other item from last night was that call skew seemed to come in rather sharply with the rally into 6,100. With that, we see that the SPX GEX has changed shape quite sharply, going from a gradual negative gamma slide >6,100 and into 6,200 (see y’day note), to a cliff that ends right at 6,100. This suggests that positive gamma >6,100 was added which corresponds to the drop in call skew. Essentially traders monetized the upside yesterday, and that should put a damper on the rate of change to the upside. We are looking at this as more of a volatility collapse signal and sticky SPX prices vs a massive topping signal.

How do we trade this?

SPX ATM vol is now <=13%, with 1-month realized at 11. That is tight. VIX seems like it can come in some now – but the SPX vol is pretty dead. Given that we see pinning flows in SPX, that vol may come in a bit more – but what we are looking at here is “stock picking”. This would come with a drop in equity correlation.

Below in Compass we would look at names ready to break out – like XLV or XLB, or names with cheap calls – for example SMH is showing relatively cheaper calls vs SPY. You could of course break into single stocks too, with many Mag 7 names showing relatively cheap call options.