Macro Theme:

• Rallies into June OPEX should be categorized as “short covering” and subject to failure.
• Mark June 15th (VIX exp.) & June 17th (options exp. OPEX) as a key turning points due to very large expirations and the FOMC (6/15).
• Updated OPEX playbook here.
• The $3,700.00 Put Wall is our major downside support into Wednesday.

Daily Note:

Futures had recovered to 3805, but are now back to 3760. Volatility is obviously expected to remain high with support at 3700 then 3650. Resistance shows at 3800 then 3850.

Our overall view on the equity space has changed little from yesterday. Its clear that traders were rolling puts down (selling ITM, buying OTM) from both our HIRO data, but also updated open interest readings.

3700 remains the monster of a June 17th expiration strike and the level at which we’d watch for support into Wednesday. This strike could fuel a lot of movement after the Fed, particularly if the S&P is <=3700.

Note, too, there is hardly any call gamma (positive bars on the plot below) up until 3900, which indicates to us that prices will remain quite fluid <=3900 which could come into play post-FOMC.

Tomorrow at 9AM ET is VIX expiration, but today is the last day to trade 6/14 VIX index options. It was just a few sessions ago that we were discussing the sizeable VIX put positions and lower bound near 25. That has completely flipped, with VIX calls now being the dominant position. We’ve discussed the sharp rallies that have occurred on the Tuesday prior to the last two VIX expirations, but here we quite frankly don’t see a clear edge.

The VIX structure is in backwardation, with the Index above that of the futures. Obviously the front month future needs to settle out at that VIX level, and is doing so just hours before the critical FOMC meeting. The largest VIX calls for 6/15 OPEX are at 30 & 35 (100k open interest each), and so that range is our view into tomorrow.

Overall we continue to think that the strongest options influence arrives into that window after FOMC and into Fridays OPEX. The put positions expiring on 6/17 are quite sizeable and we remain of the opinion that it will induce a short cover rally as per yesterdays note.

REMINDER: Please join Brent + Imran Lakha today at 2pm ET for our OPEX breakdown (click here).