The "Rule of 16" options cheat code & how it works:
Rule:
Divide an options implied volatility(IV) by 16 & you get an estimate for a 1 day stock move based on options prices
ex:
IV = 32%
32/16 = 2% = 1 day stock move
Why divide by 16?
(1/x)
The "Gamma Trap"
Dec SPX has 3.3mm puts which is the largest of any expiration.
The chunkiest of these puts are likely held by funds which will hold to 12/17 expiration.
The 4000 strike has the most put interest.
If the market goes under 4500, the gamma trap could set:
(1/n)
About that record put buying...
+ What exactly is the source data?
+ The Record buying offsets with record selling
+ You need to see the ETF selling...that's interesting.
▶️👇
A word of warning to those short $TSLA...
A huge ~$8bn in put deltas expire in January, which could fuel a pretty big rally.
Plus,
@elonmusk
knows options, he could spark early put destruction with a well timed headline...
Then, suddenly, on 12/17 those 3.3 million puts expire. Dealers find themselves short too many futures, and needing to cover ASAP. Trap released. Markets rally.
Consider 2 other major lows coinciding with the day after OPEX:
Dec 24th, 2018
March 23rd, 2020
Its a 0DTE driven plunge in the S&P.
you can see the spread here between bearish 0DTE flow (teal) is identical to that of all flow (purple) informing us that the bulk of flow on this downdraft is all todays expiration.
This call trading is getting a bit nuts, as depicted in the following charts.
Yesterday was the highest SPX call volume ever!
At first look - its not "0DTE" (see next slide)...
If you're fortunate to be long here for this rally, don't get greedy.
50% of today's SPX options volume so far today is tied to today's expiration.
We've seen this movie just about every day this week.
RE: Burry's $1.6 BILLION in PUTS
Stop.
The $ amount listed on 13F is NOT the premium value but rather the value of shares the position represents (100x multiplier)
Back out the 13F SPY value:
$886mm/2mm = ~$443
He owns 20k SPY puts (2mm/100) likely worth $10's of millions
I've had 3900 as major support for several weeks, and saw it holding Friday. SPX traded under that level Friday.
Despite that break I'm still looking for a recovery over 3900 and a run to 4000 into Wednesday based on the large puts expiring.
Sometimes wrong, always honest.
This is a setup for things to break. Not advice, who knows.
Big calls expire next week (pulling the pin)
markets seem to crash hardest into quarterly exp like june
IV is ~1 year lows so put prices reasonable
a catalyst is needed:
Markets rejected spx 4150 area many times
Regional bank CEOs should take a page from Jamie, get together, and buy their stock.
I mean, their banks are all safe and now trading at a nice discount, right?
“Cost of downside protection via puts at 2-year low
The absolute cost of a 2 month 5% put in SPX is trading at one of the lowest level in ~2 years. Below the level of the top of the "summer squeeze of 2022" last August.”
- h/t
@themarketear
SPX rejected at the huge 4000 strike yesterday, and the VIX is now back <20.
Maybe this time is different, but for the last year
VIX < 20 has been associated with market tops.
$NVDA shows a 0 correlation to $SPY
That is - NVDA has become uncorrelated with the broader equity market in a very extreme way, even though it has a weighting of 7% of the SPY itself.
Things are broken.
You can see this in the rolling plot of 20 day correlation, which shows a
Our 1.5 min JPM collar trade review
Final prints
44k contracts of the Dec 30 Exp:
> short 3835 calls
> long 3390 puts
> short 2860 puts
That long put is almost to the tick of the Feb '20 market high. See you in December. 🙃
▶️👇
So far, the options flows are dominated by put covering (blue). This is essentially short covering, which makes the rally unstable.
Bulls want to see longer dated call buyers come in - they're so far absent.
That violent 10AM meme-squeeze this AM was odd.
Many names like $GME $AMC $BB (I counted 9 meme names in the 137 we monitor) all had a surge in positive delta's (call buying/put selling) right at the same time - like a short cover basket was launched.
Someone is buying a lot of 0DTE SPX calls today (teal), premarket.
Can't say I've ever seen this before, particularly before a meaningful data print. The 45° of the flow is also 0dd, implying some kind of algo.
This comes after massive SPX call flow day, y'day...
put rallies are so much fun on the way up, then have been
breaking violently.
i have no idea if the market is going to dump from this level, but the risk of being long and wrong is very high.
Large persistent put selling all day in SPY & QQQ. The implications here are that as puts are sold, dealers are buying them back. As a result dealers are covering short stock hedges.
This covering feeds back into the negative gamma position - dealers buying as market goes higher
$TSLA -6% today. I'll say it... I think we're w/in ~1% of the low (ref $128)
Basing this on stock pressing into $125 area (red line), which is where the last of large puts sit. Often w/this chart setup the downside momentum wanes.
Not advice. @ me all you want, I enjoy it 😁
Equity Put Volume(blue) hit records last week. Coincides with a market low.
Equity Call Volume(orange) didn't come back in.
Equal weighted S&P bottom pane.
Rally was fueled by the destruction of puts. In essence short covering.
Here we go -
An ETF that sells 0DTE puts for “income and equity exposure”.
Per Lu Wang’s BBG article:
“The fund will write puts — bearish contracts that offer the
buyer protection from index declines — to generate income. By
offering options with such a short lifespan, the
...for those of you with a view past 0DTE 👇
Put buying is back to '22 lows, according to the latest weekly data from the OCC.
Interesting, given the recent market weakness.
No one wants calls, either, as call activity is also at lows.
It’s likely we‘ll see another CBOE Equity Put/Call Ratio high tomorrow 😱
NO, that does not indicate traders are betting on a crash.
Here is your proof 👇🏼
Today was about put covering, particularly in the $QQQ. The deltas traded are shown below in purple.
In our view it was therefore a short cover rally - which is less stable than call and/or "real money" buying.
This is really rather remarkable.
On one hand you have equity put volume (orange) unleashing the kraken. Meme's deleveraging.
Other corner: SPX, uninspired.
“There lies a sleeping giant. Let him sleep! For when he wakes, he will shake the world.”
0DTE call volume just going nuts today, and may lead to a 0DTE SPX record (in % terms).
1 million calls traded so far today, 59% of those are tied to today's expiration, and those are heavily concentrated at:
3890: 72k
3895: 65k
3900: 98k
When the deltas turn up so does the market.
SPY put sellers came in, creating positive deltas, spinning up a short covering feedback loop.
put sellers = dealers buy back short hedges = higher markets = put values lower = dealers buy back more short hedges
Netting call & put delta, you can see we're near extremes in terms of put:call positions.
Often large put positions are removed by expirations, which seems to coincide with market lows.
Many of these are quarterly expirations which coincide w/FOMC meetings - such as next week.
FWIW the Fed has not unlocked call buyers (orange) in $SPY or $QQQ.
Bulls should be happy with the break >$4,000 but this lack of call buying doesn't bode well for follow through.
Friday over 2.5mm calls traded on the CBOE - that was the first time since Nov '21!
Forward returns from days with >2mm daily CBOE call volume:
5 day: -1.37%
10 day: -2.12%
Only 14 out of 104 times has the SPX posted a positive return 10 days after a +2mm CBOE call volume day.
There's a chart going around showing record "retail" put buying last week of $19bn vs $6bn calls
If retail is based on of 1-10 lot trans size, those charts seem wrong
Retail calls (blue) & puts (orange) were low & equal
Further, those charts ignore RECORD PUT SHORTING
👇🧵
Final JPM Collar for 12/29 Exp:
- 41k 4,515 C
+41k 4,055 P
-41k 3,420 P
Despite all the tweets about earlier prints, the trade always gets rolled to the final resting strikes right before 4:15PM.
Record SPY volume? Yup. Meaningful? Hold please….
35% of Friday’s volume was in Fridays expiration.
70% of total SPY volume was in options expiring <7 days
This drives volatility and noise.
The big money that drives long term prices probably aren’t flipping 0DTE options.
re: 0DTE
-Flow from all S&P options is purple
-0DTE only flow is teal
-SPX Price is white
The fact that these purple & teal lines don't diverge over the course of the day inform us that nearly all of the meaningful flow is 0DTE.
As you can see the flow is pretty neutral until
Very large $VIX put positions from 19-26 all expiring Wed just before the FOMC.
Interesting to note that on the Tuesday before the last 2 VIX-exp's there were strong ~2% SPX rallies.
This is pretty wild - don't think I've seen a full day of almost pure 0DTE
Purple: all S&P500 options flow
Teal: 0DTE S&P500 flow
The direct overlap of the lines suggests nearly all meaningful flow was 0DTE
Volatility tied to tomorrows CPI print is now much higher.
CPI likely sparks a sharp directional move which feeds into a very large Friday expiration.
We see little resistance from 3900 up to 4000, but resistance > 4000.
Downside is sloppier, with first target at 3800. If
There is a very large, persistent bid to S&P500 calls today.
This is one of the larger readings we've seen, and then onto this you have to add what is looking like a record level of call buying across Mag7.
The January OPEX is very large for single stocks, which could magnify risks if SPX <4,700.
This large OPEX is the result of lot of Jan leap calls that gained in value as the market rallied massively in 2023.
In theory the unwind of these positions should add to volatility in
Friday was the 2nd largest SPX Call Volume ever at 1.6mm contracts (blue)
only eclipsed by 1.7mm calls on 10/13/22 which was that wild +4.5% CPI rally day
The Dec '18 analogy is interesting. Markets dropped ~15% from 12/1/18 to Xmas Eve. Coincidentally Xmas eve was the day after OPEX.
The equivalent drop from today places the SPX near 4000, which happens to be the strike with the most put options.
0DTE has been fairly quiet up until SPX hit ~3980.
There we see 0DTE call buyers pushing positive deltas in the markets.
Put sellers pretty quiet, Marko.
More index puts are being shorted then bought.
The other times similar levels materialized was after large mkt declines - so puts were more expensive w/more volatility premium. Here though, traders have decided to step up and short puts with markets at record highs.
Maybe tomorrow opens limit down, I don't know.
But it seems that everyone is on one side of the boat, and as we all know the biggest rallies occur during bear markets.
Take AMZN, in which call volumes are lower than Bezos' pride after his Leonardo run in.
The S&P was +6% (!!) this week
This move was in a generally low liquidity environment likely exacerbated by Memorial Day
Interestingly, long call buyers were absent this week, as shown through this OCC data. There was however a noticeable decline in put buying
$GME is not in the $SPX, but it certainly appeared to break with it today. Everything is linked, and we see that morning flush as a prime example of the leveraged-induced fragility of markets.
4000 SPX is what we're 👀 & it's particularly important this week
Why?
Position guardrails around 4100 have worn down after OPEX now allowing more S&P px movement
Implied vol (IV) has compressed to levels where "something has to give"
Enter: Fed mins Wed & GDP/Jobs/PCE Fri
0DTE call buyers came in off of the open, but since ~10AM the flow has been quite neutral.
My running theory is traders come in and buy some cheap 0DTE calls after markets move markedly lower, possibly to hedge long puts.
Interestingly we do not register put buying here at
This ratio of call delta/put delta typically corresponds with large draw downs in the $SPX $SPY. S&P is ~5% off 9/6 highs of 4547 - curiously dip buyers are suddenly absent.
Nomura Holdings Inc. is pulling the plug on
a large chunk of its hedge fund business as the deep losses the lender sustained through the collapse of Archegos ...The Japanese bank has decided to stop offering cash prime-brokerage services in the U.S. and Europe
-bbg
There are >$100 billion (delta notional) of call deltas expiring Friday. We outlined why this could cause some volatility, particularly in cases like $TSLA and $ARKK.
More here, along with a download of stocks & estimated impact:
Wells Fargo says this trade rallied the market today at 12ET
net delta of package was $30mm
doesn't seem huge...maybe a sentiment booster
+buy 20k oct 31, 4500 calls
+buy 14k mar 17, 4300 calls
-sell 48k jan 20, 4500 calls
for fun a payoff profile
h/t
@luwangnyc
article
👇Evidence that we are at an interim high.
Its a noisy chart, but stay with me.
➡️green = SPX
➡️orange (RV) = 1 month realized volatility: how much the SPX has been moving
➡️white (IV) = 1 month implied volatility: how much volatility traders expect in the future
🧵
$VIX snapshot here, you can see that total VIX call open interest (dark blue) remains near March '20 highs
Many are highlighting the surge in positions for VIX >=40 calls and most of that is positioned in Oct/Nov expiration in the 70-85 strikes
470 $SPY is the dominate strike into FOMC. >40% of total S&P gamma goes away Friday.
Powell is going to charge the market up, then the pin gets pulled.
SPX call open interest is < put open interest
for the first time since Jan '22.
We also note that both SPX put open interest & VIX call interest is at record highs.
"Retail investors net bought $2.6 billion worth of stocks and exchange traded funds on Thursday, according to Vanda Research. It was the highest level of net buys ever recorded by Vanda"
We've breached our S&P Call Walls at 4080 (SPY 407), which historically is associated with negative forward returns.
So, I'm looking at some puts here...particularly given the IV smoosh.
For SPX this is the 3rd longest streak of days without a close/close <-2% decline, going back to Jan '20.
Streak
#1
in 2007 ended with a -4.5% decline over following 5 sessions.
#2
was Volmegeddon, with SPX -10% over 7 sessions.