VolSignals
@VolSignals
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Flows move markets. Learn how THE Newsletter for SPX flows & volatility 👉 Education, not advice 🍻
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...stay calm.
I found a treasure trove of coverage on the SPX whale's put spreads from last summer.
should I drop a master thread this weekend?
..need a ton of demand for this to justify the effort.
follow / like / retweet, and IF the interest is there
..it'll be epic.
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Citi suddenly looking for 8 RATE CUTS in a row, beginning with September's meeting 👀
CPI this 7-11 will be a canary
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SPX options are priced on a forward curve.
The underlying SPX value for a year out option is NOT THE SAME as the underlying SPX value for a 0DTE.
Right now you have around $230 between Sep24 and Sep25 - the futures settlements on the CME website give you a quick view of the
What if rising odds of a Fed rate cut aren't actually bullish because they could happen within the context of both a slowdown in the economy and disinflation, both of which could erode revenue and earnings? Something to consider. Certainly the bond market appears to be seeing it.
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via JPM this week:
"With crowding in the Momentum factor in the 99.8%ile... such crowding episodes tend to be followed by an eventual and often sharp correction."
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Friday we dropped into a very supportive gamma zone circa 5200 as
@optionsdepth
pointed out on their feed
Moving from neutral gamma to dense long gamma is a very very stabilizing thing for markets during a selloff
very
Suddenly,
dealers "WAKE UP"
...and start adding size to
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If you believe, like I do, that this rally is overextended and at risk of selling off *soon* given the increasing tension building around rates & issuance, at ATHs...
then- skew is your friend here.
Vol & Skew this low is a sign that the market is not adequately hedged.
1/2
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What matters more than what you "think" should happen?
Positioning- along with mechanical and systematic flows.
Bookmark this thread!
Every mini case study we produce over time will be catalogued here.
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...fwiw this is not the takeaway from the Nomura notes-
@unusual_whales
has it backwards🤷♂️
SKEW exploded in April & retreated in May
BUT IS CLIMBING AGAIN
..demand for Puts over Calls reflects *increasing* levels of fear in markets
"crash risk" is making a comeback... 👀
Stock-market crash fears are fading, per MW.
Demand for “out-of-the-money” puts relative to “at-the-money” puts on the S&P 500, a measure known as “put skew,” has diminished after rising last month, according to data from Nomura’s Charlie McElligott.
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VolSignals - VIP Mentorship. . . 🥂
Limited to 35 spots... (21 seats available)
Hard close at tomorrow's open.
details and registration:
3 FREE SPOTS WILL BE GIVEN AWAY AT RANDOM
to be eligible:
✓ Like this tweet
✓ Follow this account (
@VolSignals
)
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Dealer Hedging Dynamics 5-Day Boot Camp is officially complete and going forward will be run once per month...
...OPEX Week🎯
Next one starts tomorrow night
LIKE and RETWEET this promo and we will draw 3 free spots Tuesday night before the launch
Done, finalized, cherry on
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SPX dealer options inventory...
What's the setup into next week...?
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VIX call spreads can be attractive but honestly those probably work best when S&P skew is trash and dealers are swimming in downside gamma- since the VIX upside is probably overpriced in all but extreme situations-
Keep it simple right now, vol is cheap-
you get too creative
@VolSignals
So what are some practical ways to hedge a portfolio? VIX call spreads or SPX far OTM put spreads at different tenors? Seek to protect x% of your portfolio using 2 sd OTM puts assuming a 3sd move? Everyone says you should hedge, but don't tell you how. (mini-rant/rhetorical Qs)
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DEALER HEDGING DYNAMICS 5-Day Boot Camp
starts NOW
Registration CLOSES tomorrow morning at 9:30 AM ET— SHARP.
5 FREE entries will be given away.
To enter, just:
✅LIKE
✅RETWEET
**THIS** TWEET
-for your chance.
**(keep your DMs open!)**
If
5-Day Dealer Hedging Dynamics Bootcamp
is opening NOW
Do you believe in supply and demand?
Buyers (lack of sellers) push price higher?
Sellers (or lack of buyers) push it lower?
Registration closes on tomorrow's OPEN 🚨
Info Here:
The purpose is to
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per Nomura...
Long SPX dealer gamma lives just below spot, while rallies into All Time Highs...
could get dicey.
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SPX... h/t GS→
SPX posted its worst week since Mar'23, yet the intraday moves were significantly more violent than close-close...
Goldman's View: "The move lower is in the latter innings & the risk of a squeeze is growing rapidly as we approach oversold conditions & an
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More from 2024 Equity Volatility Outlooks...
"New lows in volatility: Equity volatility is at 5-year lows, only the 17th percentile in a 20-year range. The end of Fed tightening cycles often results in periods of very low volatility.
These tend to give way to a much more
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Tired of hearing about CTAs?
If you're obsessing over SPX dealer gamma
but ignoring CTA thresholds
you're doing it wrong.
The second tweet explains this- but before you read on-
Consider: JPM's Global QDS desk estimates that CTAs account for 10% of total futures volume
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Sell a cab, drive a cab
Brutal start to '24 for this short SPX 0DTE manager
...what advantage could there be to selling spreads like this at 0.10-0.15?
risking 125-1 losses..
when there are much more attractive, premium-intensive structures upon which to build your approach?
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This- is SKEW.
To see how everything's related, let's go back a step.
think of GAMMA intuitively.
...cut through all the jargon, math and calculus for a second
and resist the urge to worship at the altar of precision
What is GAMMA?
"second derivative of price with respect
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Tomorrow my son graduates Kindergarten🥳
The teachers gave each child a personalized award—
& told stories
about what makes them so special.
My son pulled his award from his backpack tonight💗
...and gave it to me.🥲
I wonder sometimes, how this world fits his heart🫠
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GS on CTAs?
. . .they triggered. 👀
the key level in ST was flagged as 5135 SPX on Friday-
which the index finished well through.
If SPX falls ~3% from 5130 over 1 month, expect $20bn of S&P futures for sale
and $42bn for sale if the index falls 7-8% from here.
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With Powell out of the way and saying a whole lot of nothing-
...beware holding Friday options for NFP when CPI is the big game.
—and critically:
CPI is 3/12
👀Opex is 3/15 . . .
Quarterly positions will be 2.5 - 3DTE when CPI is released.
The "event vol" crush *could* have
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Which way will we go after tomorrow’s NFP?
Here’s a handy cheat sheet from a dealer hedging perspective:
At 8:29:59—
If futures are above ~5200… impulse is 👍
If futures are below 5200. . .
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on deck... JUNE SPX OPEX
"Is this dealer position supportive?" 🤔
-wrong answers only.
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CTAs are buyers of equities in almost every scenario over the next 1 week, per GS-
but you can see clearly in the chart below that once this bidding is complete, they are back to representing a significant source of asymmetry in the market-
...a "sell skew"
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sell the rips 🎯
...now watch for CTAs, round 2
If we trigger again, expect fireworks and range expansion to the downside...
Need to understand the flows taking the wheel here...
-it's not small-lot flow from Twitter traders
TL/DR from last night's note-
Trader's Market.. but need to know:
✓ CTAs
✓ MM's longest strikes
✓ Charm & Vanna Flows: *Not always supportive...*
✓ Seasonality- Weakness behind us
Sign Up & read FREE
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"For the first time since 2021, options volume now surpass shares volume in US single stocks."
h/t GS
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One of those periods where *charm* and *vanna* flows are actually supportive, buybacks returned to market, and CTAs were net buyers after briefly trimming exposures mid-late April
@assfacecapital
Check w
@VolSignals
he called a slow grind towards 5245 based on options positioning and flows.
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CTA triggers aren't close.... yet.
In his latest note, Nomura's McElligott called these systematic flows out for what they are-
"synthetic short gamma"
When we say the market is short or long gamma, we are describing an embedded feature of its behavior
Time to care about CTAs.
CTA flows are...
🎯conditional
🎯in the direction of trend
🎯 getting closer...
You should know where these SPX flows cluster & have a ballpark estimate of potential size-
Now's a good time to pay attention
...it's just like big neg GEX 👀
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JHEQX / JPM Hedged Equity
SPX Quarterly Put Spread Collar...
+39k MarQ'24 3800/4510 Put Spread ($33.73)
-39k MarQ'24 5015 Calls ($33.99)
Fund buys 15.7k of the DecQ (0DTE) 4515 Calls for $256.74
Total Trade
$7.5B delta for sale & ~$5.5M vega for sale
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I think
@jam_croissant
may be right on a different point fairly soon
Recall he popularized the idea that "what worked last time, won't work this time"... so you tend to see flip/flop alternating behavior in markets where derivatives positioning is relevant
During the last
...fwiw this is not the takeaway from the Nomura notes-
@unusual_whales
has it backwards🤷♂️
SKEW exploded in April & retreated in May
BUT IS CLIMBING AGAIN
..demand for Puts over Calls reflects *increasing* levels of fear in markets
"crash risk" is making a comeback... 👀
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did you check Fintwit today to find out if options had any hand in today's selloff?
"probably something to do with 0DTE positioning, right?"
so you scroll through your feed and find the gamma guys- let's see what they're saying
hmm...okay.
any other guys out there seem to
..you get it yet?
it does matter
it's not rocket science (well..)
If it's still Greek to you..
Friday morning before open I'll host a free voice chat to explain it all and answer Qs 🥂
>> Retweet & Sign-up <<
my read on yesterday is below⏩
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it's only fair to elucidate my views on Cem's calls
don't care for drama and I know everyone is busy
first my view as I spelled out on feed and in the note I send out:
July 3 to July 5 I ramped up the messaging that it was time to start hedging
why?
few reasons
1) same
Macro + Flows = 𝗖𝗿𝘂𝗺𝗯𝘀 🥐
@jam_croissant
is back with
@OJRenick
to share his latest notes on volatility, options flows, trading around the election, and more:
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JEPY
The Defiance ETF that sells SPX 0DTE at any IV, daily 👀
- they're going to grow.
- you're going to hear their name thrown around with words like "Volmageddon".
— ignore.
SPX cratered through their naked short Puts yesterday
...did they survive?
-130bps
one. point.
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Goldman flags big moves ahead..
"Our model suggests a 25% probability of +5% move in SPX over next 1m (options price 6% chance) or 24% chance of -5% move (options pricing 10% chance)"
Goldman's GS EQMOVE has been🎯 for a while
Macro & flows suggest volatility coming
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...per Mike Wilson @ Morgan Stanley:
"Bear 🐻 markets are *mostly* about negative earnings trends ->
...depth & length of bear markets depends on trend in forward earnings
-> Has EPS troughed...?"
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CME website is full of hidden gems
The Fed Watch tool is one of them.
Get to know it!
SPX options are priced on a forward curve.
The underlying SPX value for a year out option is NOT THE SAME as the underlying SPX value for a 0DTE.
Right now you have around $230 between Sep24 and Sep25 - the futures settlements on the CME website give you a quick view of the
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per GS—
Feb is a very tricky month for risk assets, as cash stops making its way into the equity market- especially towards end of month
Feb is the 2nd worst month for the S&P since 1928 (Sep = worst)
The 2nd half of Feb is the worst 2 wk period of the year for the S&P 👀
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not sure if you can tell...
but dealers are long boatloads of gamma in the SPX right now.
This trade can be self-fulfilling—
...as the hedging of this gamma keeps the index contained.
Let's look at some estimates-
1/n
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Quarterly expiries do see more inventory build as a lot of traditional vanilla hedging structures track end-of-quarter settlements (..the JPM Collar, for instance)
. . .but there's another 'less sexy' reason the numbers dwarf serials by comparison
Most of the manual trades-
"Options expiry tomorrow with $2.5 trillion in notional set to expire. This is slightly higher than the average May expiry, but well below some of the recent quarterly expiries we have seen."
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well, this is awkward
..you get it yet?
it does matter
it's not rocket science (well..)
If it's still Greek to you..
Friday morning before open I'll host a free voice chat to explain it all and answer Qs 🥂
>> Retweet & Sign-up <<
my read on yesterday is below⏩
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Alright.
I know it's hard to even think about buying short-term puts at tomorrow's close,
What kind of idiot would fade this strength
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💥...a lookback at last Summer's flows 🐳👀
[Bookmark this to catch the updates]
...we first began profiling the Whale's trades last year, the week after July OPEX💥
...stay calm.
I found a treasure trove of coverage on the SPX whale's put spreads from last summer.
should I drop a master thread this weekend?
..need a ton of demand for this to justify the effort.
follow / like / retweet, and IF the interest is there
..it'll be epic.
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this is insane, sad... an absolutely awful moment
the most awful thing about it?
it's that 'shocking' isn't one of the first words to come to mind
if there was ever a time to pray for this country,
this is it
if we can't draw the line here and say 'hold up- too far', we're in
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Whale is taking profit 🐋
Move 🎯
cash out 🎯
Let’s see what happens to 1M skews
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are we for real?
I don't seek argument-
I OWNED the fact that I misunderstood the George meme.
I then USED the George meme for dispersion only.
and now am just asking if that's still in play (cuz it seems like an important Q)
(because I never ran a dispersion book)
@willemijn_arjen
@jam_croissant
I don't even actually care if right or wrong I just want to know NOW if dispersion is still a force for grind up or if that's done
why is this so hard does everything have to be a fucking fight
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...no sign of hedging into tomorrow's FOMC ¯\_(ツ)_/¯
Imagine how low the "panic index" would be
without the SPX Whale
long all those put spreads... 👀
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Risk Doctor 🍻
@VolSignals
I think Natenberg, MacMillan, Bennett are great resources but for me Charles Cottle, another former MM, was the game changer for a deeper understanding of the game 👇
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Remember the "gamma unclench"?
Now, look 👀
Just a few days later
When you hear McElligott say that "time is not a bear's friend"
or
@jam_croissant
talk about how the window is closing-
that sharp vertical inflection right after SPX op-ex is exactly what should come to mind
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Dealer positioning in SPX is worsening as we head into Jan OPEX-
and dealer positioning in VIX Calls is notably strained (1%-ile, per Nomura's McElligott = *very* short)
Supportive positioning is evaporating / replaced with increasingly negative gamma. . .
4750 = 👀
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...kind of a wild day to have VIX hold 18-19 level for the whole day even as the SPX hovers around unchanged-
I'd expect vol to come in pretty hard into tomorrow's open but it's an opportunity in my view to pick up 30-60dte downside hedges (and maybe some < 14dte upside lottos)
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Look at the setup in the SPX 🤔
The first thought you should have when you see a graph like this?
. . . "Call Wall"
Now- this one is a little more interesting since we have a concentration of customer-short options around 5245...
—but a quick shift into negative gamma
$SPX
🚨The Latest Market Makers' Gamma Exposure Heatmap is LIVE!
✅Here is a quick breakdown of today's environment:
0:00 Gamma heatmap overview
2:45 3D gamma surface
3:55 0DTE customer positioning
Make sure to share and comment if you enjoy this content 🙌
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Remember- positions are supportive up here through Tuesday, as CHARM goes.
But the support fades away if we selloff and if VOL spikes.
We’d see vanna influence probably inflect at the middle strike of JPM’s collar, and below it, not as much spot down vol up behavior
Good luck
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...strange thing about Powell's commentary.
He keeps saying "policy is restrictive"
Despite financial conditions- as measured by the Fed's own National Financial Conditions Index (NFCI)- not only "looser than average"...
...but easing since March of '23 🤔
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I’m pretty sure someone could take $100 into $19M the next 21 days if my path is right here
What a unique market setup we have for June
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Per GS...
"Gamma, this is new. S&P 500 index gamma is now long only ~740M, this is the smallest long position since November 1st. Gamma peaked at nearly $10B long at the end of the year. This was one of the largest two-day decline in gamma in our data set. This matters. The
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Remember- don’t be a permabear.
Go touch (sea)grass and hug your kids 🍻
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Time to care about CTAs.
CTA flows are...
🎯conditional
🎯in the direction of trend
🎯 getting closer...
You should know where these SPX flows cluster & have a ballpark estimate of potential size-
Now's a good time to pay attention
...it's just like big neg GEX 👀
per SocGen...
CTA leverage is estimated to be near all-time highs...
...remember- conditional CTA flows are just like negative dealer gamma.
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..in each case, equities top in the last few days of the preceding month, & the puke happens into Opex.
How similar are the peak-to-trough drawdowns?
✓ After topping on Jul 27th, the SPX took 17 days to drop 5.90%
✓ After topping on Mar 28th, the SPX took 17 days to drop
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spot down, vol up...
yes.
BUT this is a weak move for VIX on a pullback like this.
it's almost like vol is handcuffed on the selloff today
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we made it.
All the noise, below...
my favorite is the fifth from the top 👍
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h/t GS—
" *Max* Long (SPX) Gamma will finally roll off. We've seen one of the largest one week declines in gamma in our database. We're through 2023 expiries and 2024 gamma is no longer Max Long. The rest of the long gamma exposure should clear by January monthly expiration."
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You should definitely be taking advantage of the Fourth of July “options clearance sale”
Own 60-90 dte vol here hedged…
-and between seasonality and near-certain electile-dysfunction, the odds are on your side.
Mid-July usually marks the seasonal nadir for index vol
GS: Dealers are long $5.5bn of SPX gamma which increases to $15bn on just a 1% move higher." Note gamma fades if we go even higher. The biggest "pain" for dealers is to kick this up a percent and hold it there for the shortened holidays week. Paying out massive theta checks and
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Sorry Charlie!
that's...not how this works.
Dealers HEDGE.
THEY'RE ALREADY LONG 10M+ GME
—vs this ONE position.
IF you bet on hot takes like this—
...YOU'RE the mark.
@TheRoaringKitty
has one way...
to REALLY make a mark,
like-
one you'll hear about for years
I will not
If Roaring Kitty decides to exercise his $GME options on the livestream tomorrow - thereby forcing market makers/brokers to cough up 12 million GME shares out of thin air for him to buy - prepare for one of the the most epic rallies in history.
Think he'll do it?
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it was fun while it lasted
until next time, SPX/ IB Whale... 👋
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from DB:
Tech net call volumes over the last few weeks spiking.
Looks like *at least* a 5-year record surge.
...would love to know the entities behind the volume.
Something tells me it's not just a whole bunch of kids on summer break... 🤔
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...falling deeper and deeper into neutral (low dealer gamma) zone
tomorrow, could see some red...
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More importantly....
The flows that are hitting today, like
...SPX Jun24 4300 Puts bought 7500x
...are a tenor reflective of serious hedging as opposed to cumulative 0DTE build-up.
This, combined with the accumulation of discretionary downside hedging flows between Jan & Mar
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friendly word of caution for the uber-dip buyers rushing to be first-in this evening:
eq's turned to heavily net sold before Friday.
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..you get it yet?
it does matter
it's not rocket science (well..)
If it's still Greek to you..
Friday morning before open I'll host a free voice chat to explain it all and answer Qs 🥂
>> Retweet & Sign-up <<
my read on yesterday is below⏩
$SPX
The systematic Iron Condor seller got run over yesterday.
🚨He seems to have doubled down in magnitudes never seen before 🚨
About 47k contracts expiring today 🤯
See it by yourself...
Yesterday:
Today:
Will he will this time?
Comment below ⬇️
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With most of SPX already reporting Q1 earnings, what should be top of mind?
. . .buybacks returning to the market
(at least someone will be trading?)
GS estimates ~$5.5B of daily buying flows through 6/14/24
Yes, you read that right—
daily.
buying.
flows.
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buyback *blackout* period to materially end this Friday.
At which point, a major passive bid returns to the market-
How much?
This year- GS expects $1.15 Trillion
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...it's not just overwrites.
It's not even "just index"
@TheCarter758
@VolSignals
@jam_croissant
Yep and meanwhile here's only just one view of structured products. This is from May 8th.
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the bull's strongest structural case?
tax related seasonality flips after, well... tax day.
h/t GS 👀
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per GS Investment Research, on upcoming earnings:
"The 10 largest stocks will post sales & EPS growth of +15% and +32%, respectively, vs. +2% and -4% for the remaining 490 index constituents."
read. that. again.
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JHEQX / JPM
SPX (SPXW) 28-Jun'24 4185 / 4970 Put Spread vs 5565 Call...
Fund buys Put Spread 37.5k times, paired with the 0DTE (28-Mar'24) 5015 Call 13.3k
Net paid at trade ~ $320,423,000 vs an '07 ref in ES futures...
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I think it was
@Ksidiii
who pointed out...
and I'm paraphrasing here...
VIX does not like staying in the 12 handle
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per SocGen...
CTA leverage is estimated to be near all-time highs...
...remember- conditional CTA flows are just like negative dealer gamma.
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h/t GS...
"There's no longer a short gamma dynamic in the market, as gamma gets replenished to the market daily given ETF, Mutual Fund, & STS strategies. Said another way: you need a substantial sell-off to *unclench* the gamma given the rise in AUM in these strategies"
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..."shorted the highs Friday just checking in on futures in the premarket"
and-
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$2.7 Trillion Notional Options exposure rolling off tomorrow...
"Largest July-options-expiration on record"
GS: "July tends to be one of the smaller expirations of the year; January, March June, September and December are the largest expiration months"
(..remember why?)
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Nvm on the gamma vanna or EOM stuff
This guy solved Friday in between his buzzfeed articles about how we need to decolonize the fed, or something
Stock market way up on Trump’s conviction, investors liked the strong vote of confidence in the integrity of the American legal system.
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When you find out how many systematic short volatility products are embedded in your "safe" investment vehicles:
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@_YOLOgarch
@ksgreezy
@OptionsDepth
@traderpodcaste
When dealers are long gamma, they are effectively able to provide liquidity as market makers in the underlying...
this is because, should spot rally- they have a long delta exposure, and can sell underlying contracts to reduce it.
Conversely, should spot decline, they have a
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Welcome to SPX AM OPEX...
A little thread to explain why squeezes are more likely in the AM vs the PM expirations...
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"Global fund managers most bullish since Jan'22" -BoA
...what did Jan'22 look like?
Oh. 👀
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...does this correlation still matter?
@themarketear
Maybe the market's euphoric reaction to Powell's taper talk. . .
is a small tell?
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Today's SPX selloff 👀
this is why I've been adamant about the cost/benefit of hedging at recent index & vol levels
Sorry bulls... you were warned.
it's not about perma-this or perma-that, it's about the relative cost and potential payoff of being hedged
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Today is tricky, right?
The whole market is looking forward to NVDA's ER-
...but VIX May contract just rolled off, and we have to get through the Fed minutes release at 2PM, after a $16b 20yr auction at 1PM
On the face of it- the market's pricing in negative risk premium for
$SPX
📢 Market price is currently following the path of least resistance.
Today is filled with economic announcements.
Which way you think we will go?📈📉
Comment below ⬇️
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...big speculative upside buying today in ES Options
ES Apr'24 5330 / 5350 CS +40k for $2
ES May'24 5400 / 5420 CS +40k for $2
Sound familiar?
By no means is a tight OTM call spread sophisticated...
but the track record?👌
Last 3 times this whale played.. they all hit.
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Glad you hedged?
Skew performed today- about time.
Tactically though, you should have been selling or lightening up on any long puts into the close- or after VIX expiry tomorrow.
Given the technical nature of the rush back into vol (VIX 17s...), expect a reversion- VIX puts,
Goldman's expectation for today's response to CPI...
Point of interest- we are so much higher than we were for the last NFP (when Goldman had the market tanking on a massive beat)
Ostensibly, Jan CPI is more important (not less) when it comes to the market's expectation of
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*KASHKARI: `TOO SOON' TO DECLARE INFLATION PROGRESS HAS STALLED
*KASHKARI: FED WILL DO WHAT'S NECESSARY TO BRING INFLATION TO 2%
*KASHKARI: RATE CUT THIS YEAR 'CERTAINLY STILL A POSSIBILITY'
—thanks, Neel!
Stay tuned for more *piercing insights* this week from talking Feds👍
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…don’t expect the gaps higher to continue in this range.
The most likely price action?
Grind higher into 5100-5125, as ranges compress and intraday volatility declines 🤷♂️
That’s “call wall” behavior-
There are two positions in play, leaving dealers long ~ 30k options 👉
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Think SPX options are cheap?
you're not alone
Goldman's EQ-MOVE estimates the probabilities of UP or DOWN moves of more than 5% in the next 30 days
GS % chance of 5% UP— 24%
GS % chance of 5% DOWN— 24%
What about the options-implied probabilities?
6%, and 11%.
BUY EM.
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