May 21, 2021

6:55 am

Good Morning!

SPX futures made a low of 4151.62 in the overnight session and is now hovering near 4165.00.  A view of the options chain reveals 1223 net put positions at 4175.00 while the strike at 4150.00 is now at breakeven.  Wave (c) of 2 equals wave (a) of 2 at 4178.00, so we may see a quick spike at the open.  Should the SPX sell of at the open, the dealers may have to sell up to $5.088 billion SPX contracts by the end of the day to gamma hedge the net put positions in SPX contracts.

Puts predominate the SPY options at 415.00 and below, suggesting that SPY must maintain its current position near 415.00 to the end of the day.  This is the Max Pain location where neither puts nor calls make money (collectively).  Equities are on tenderhooks today and the best the dealers can hope for is for the market to do nothing.

ZeroHedge reports, “S&P index futures ticked higher on Friday, alongside European and Asian stocks, and building on Thursday’s strong gains as bullish investor sentiment got a boost from strong global PMI surveys while reflation fears faded. Oil climbed while treasury yields and the dollar were little changed. Dow e-minis were up 150 points, or 0.4%, S&P 500 e-minis were up 18 points, or 0.43%, and Nasdaq 100 e-minis were up 51 points, or 0.4%.

Wall Street’s rebounded on Thursday following a three-day slump after data showed the fewest weekly jobless claims since the recession in 2020. The risk recovery was led by FAAMG gigacaps as inflation fears appear to have now peaked, putting the Nasdaq on course to snap a four-week losing streak as worries over higher interest rates weighed on the tech-heavy index.”

 

VIX futures are consolidating after options expiration on Wednesday.  It must stay at a low level today to support a calm equities market.

 

NDX futures are hovering near 13500.00 as options expiration nears.  Puts dominate the options at 13525.00 and below, while calls dominate above that level.  A quick spike to 13525.00 at the open may alleviate any pain to the dealers.

QQQ options show 12399 net put contracts over calls at 330.00.  QQQs are hovering near 328.00 as I write.  Should an accident happen, $4.1 billion of QQQ shares would need to be sold to cover that position alone.

ZeroHedge observes, “Nomura’s Charlie McElligott summarized things heading into the weekend perfectly for traders: “Op-Ex tomorow matters ‘bigly’ for Equities.

Critically, he explains, there remains likelihood of continued “chase-y” moves in both directions on dealer delta hedging due to the magnitude of the positioning out there:

  • Latest estimates show 31% of $Gamma set to drop-off in SPX / SPY consolidated options after Friday, but far more notably with 50% in QQQ and 55% in IWM ready to roll-off post Op-Ex.
  • SPX largest $Gamma strike is 4100 ($4.1B), and from there it’s the 4050 strike ($3.0B) to the downside and 4200 ($2.8B) and 4150 ($2.5B) to the upside.
  • Currently versus spot, we see SPX “short gamma (4175 flip), LONG delta (4096 flip)”; QQQ “short gamma ($326.25 flip), short delta ($329.77 flip)”; and IWM, “short gamma ($224.22 flip), short delta (224.66 flip)”.
  • Again, the most extreme reads are in legacy “duration-sensitives” macro-regime of “secular growth” Nasdaq / QQQ, where (negative) $Gamma of -$884mm is 0.7%ile since 2013, and where (negative) $Delta is -$18.7B / 2.0%ile since ‘13.

Nasdaq remains the most extremely positioned…”

 

USD futures made a new low at 89.65, extending the Master Cycle low to day 262.  Should the stock and bond markets remain calm today, so will the USD.  However, both are due for a reversal and a pickup in the USD may signal money flows to the USD as a safe haven.

 

TNX pushes lower, but still above Intermediate-term support at 16.13.  The period of weakness is about to expire, with strength roaring back for the next two weeks, according to the Cycles Model.

 

 

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