Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are off 25bps, dismissing an increase in tariff rhetoric from Trump and chatter that Powell could step down.

BTC continues its move higher, to all time highs at 121.

We view 6,250 as prime resistance for today, with 6,200 support.

Vols are essentially flat from last Monday, with CPI tomorrow, VIX exp on Wed, and OPEX on Friday. We’ve stated several times that we think this upcoming period (today through 8/1) could bring an equity correction due to the very low volatility expectations, rich call skews, and potential catalysts. On that basis we recommended selling call spreads and/or buying longer dated downside protection.

The fact is that SPX vol has been very stable for the last several weeks, as you can see below via 1-month SPX realized vol (green, 5-day = red).

The positive gamma positioning which has helped to stabilize this market is projected to be fairly stable in through this July OPEX. This is seen through the current SPX GEX (purple) being fairly unchanged when we remove July OPEX (yellow). This suggests that sticky upside into the 6,250-6,300 should remain in place. However, if we move down through 6,200 the positioning is sharply reduced – and such a move would also be accompanied with a spike in IV. That throws negative vanna onto a much lighter local gamma environment.

Obviously a lot can change from now to Friday – but the bottom line is this: If 6,200 is lost then that is the “bat signal” for a sharper correction of several percent. Further, we really don’t see any major support level below but we would instead watch 7/30 FOMC & 8/1 tariff TACO day as a time-based support/turning point.

Lastly – on Bitcoin.

Many are plotting BTC vols since 2020 or some crazy earlier period. We’d suggest that bitcoin has largely shifted into a more mature asset class and so the +100% IV’s of 2020 might be a thing of the past. Thats not a hill we want to die on as you really can’t discount how weird things can get in this environment.

That said we can see that IBIT (which launched in ~Nov) had IV’s in the 60s (which mirrors BTC vols in that time period), and so that is a reasonable “target high” IV for rich bitcoin vols. The chart below is from Friday’s close, and so this AM we are likely to see IBIT vols up quite a bit. We already see call skews in the >95th %’ile and so if we add in an IV rank >90 then that is a classic “stock up, vol up” overbought condition. Reference IBIT: $69.25.