Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are 20bps higher with no major data on deck for today.

The SPX is indicated to open at 6,950 – which is right in the center of the ~14-day prevailing range.

Our Risk Pivot remains at 6,890, and we want to remain long while SPX is above that level, eyeing the 7k area as resistance into FOMC.

Today is Jan OPEX, with VIX Exp on Wed. With SPX at ATH, and realized vol ~8%, the OPEX edge would be in looking for SPX vol in increase, with some light mean reversion in SPX prices. However, for the SPX this expiration seems to not matter much, as SPX GEX shifts quite lightly (yellow = GEX after expiration vs purple = current GEX). Simply stated this OPEX does not seem to loosen up SPX GEX today all that much, nor shift it to a negative downside stance. Additionally, we are heading into a 3-day weekend with MLK on Monday. This incentivizes traders to sell short dated options, in order to collect extra perceived decay. Given that, if any equity weakness was to arrive, we’d anticipate it as a “next week thing” vs today.

As we’ve covered, upside here is tough as traders have sold calls into previous 7k attempts, and vol is likely to be sticky, which removes vanna as an upside surprise. It’s likely stocks need the catalysts of FOMC & earnings to push higher.

Single stocks are likely to lose a lot of ITM deltas from calls that have built up in value over the last year. We think OPEX could therefore bring some net selling in single stocks – but we hesitate to expect much until/unless the SPX Risk Pivot is broken (<6,890). If that level is broken, we do not think material vol selling will occur with FOMC on Wed 1/28. Further, on the single stock side, eyes are set to earnings which pick up in earnest next Wednesday (1/28).

Single stock vol is also going to be sticky for the next week due to earnings. You can see this in Compass, which measures 1-month DTE. Many top names having IV ranks that are in the 30-50% area, and they are also crowded in that bullishly positioned lower right quadrant. A move lower in stocks can shift these names towards puts (left on Compass), but vols are not likely to sink until post-ER. So, again, we base case read this as throttling upside, and if downside were to appear it could be ramped up a bit given this vol position. In summary, continue to favor long until SPX <6,890 – as that risk off level likely means single stocks are going to correct, too (i.e. correlation spike).

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