December 29, 2022

11:35 am

Jamie Dimon may have got his Christmas wish, keeping the SPX range-bound for the week with the collar at 3835.00, above potential short gamma at 3820.00.  There may be a tilt toward long gamma to squeeze the speculators betting against Tesla and Apple.  If successful, SPX may rise to the 50-day Moving Average at 3887.83 or Short-term resistance combined with the 38.2% Fib resistance at 3893.00-3894.00 in the next 24 hours.

ZeroHedge remarks, “In the battle for supremacy over whether a Santa Claus rally will emerge into year-end or more coal, it would appear the critical players are Jamie Dimon’s whale of an options position being rolled (playing Santa) and an armada of day-trading options market players attacking TSLA with all their might (playing the grinch).

Exhibit A in the case for/against a rally is this rather shocking chart. The CBOE equity put/call ratio exploded this week to its highest level ever (amid devastating low holiday trading liquidity)…

Source: Bloomberg

So what the hell is going on? Well, it appears our old friends in the 0-DTE are taking advantage of Elon Musk’s headline-making skills and day-trading TSLA puts (and the obvious gamma-squeeze this creates – to the downside) to make a quick buck…

The massive scale of TSLA put turnover relative to call turnover is simply unprecedented and is likely the main driver of the chart above’s outlier-like appearance.”

 

7:30 am

Good Morning!

SPX futures bounced to 3802.00, then eased down.  The decline into the close may not have been enough to trigger dealer selling, but SPX is in a tenuous spot beneath 3800.00.  The Cycles Model suggests a probable bounce to the 50-day Moving Average at 3882.00, but the market is prone to overreact to bad news.

Today’s op-ex shows Maximum Pain at 3820.00, where short gamma may begin, while long gamma starts at 3825.00.  There’s barely a razor-thin margin for error.  SPY (close: 376.66) options show Max Pain at 382.00 with long gamma starting at 383.00 and short gamma at 381.00.  Dealers are praying for a flat trading day.

ZeroHedge comments, “xcerpted from Goldman Managing Director and derivative guru Brian Garrett’s notes,

Market Dynamics into Year-End…

In one line, there is a lot of long gamma in the market right now.

This is being offset by:

1/ increase in non-fundamental supply and

2/ decrease in fundamental demand.

Option strikes can only do so much of the heavy lifting in a bear market.

For those not in the seat today, NDX currently printing a fresh 2022 low (below Oct/Nov levels @ -34.6% ytd)…”

 

 

VIX futures are as flat as can be with a range between 22.03 and 22.31.  The Cycles Model shows activity picking up after the New Year,  Nothing to see here…until there is.

Next Wednesday’s op-ex shows Max Pain at 22.00.  Short gamma appears at 21.00 with 12,486 put contracts, while long gamma eases in at 25.00.   No surprises expected here.

 

TNX remains above the 50-day Moving Average at 38.24.  It has about a week left in the current Master Cycle, but it may go out with a bang.

ZeroHedge reports, “One day after a stellar 2Y auction stopped through by the widest margin since 2016, moments ago the Treasury sold $43 billion in 5Y paper in a solid if modestly  tailing 5Y auction.

The high yield of 3.973% tailed the When Issued 3.965% by 0.8bps; ironically the December auction was almost a carbon copy of November, when the 5Y paper priced at 3.974% and tailed by 0.7bps. With the tiny decline in yield, this was the lowest 5Y auction yield going back to August.

The bid to cover of 2.46 rose from last month’s 2.39 and was above the six-auction average of 2.36, if largely in line with the tight range the BTC has seen over the past 8 years.”

Note:  I have a family obligation that requires me to be out until after 10:00.  I will return for more comments later.

 

 

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