The SPX rallied 1.4% on Friday and closed on the highest level since early June, while 10-year yields fell to the lowest level since April,22.
Recap: It all started Tuesday, when the market popped higher after the close on Microsoft earnings.
Powell then produced a second leg higher with his remarks that interest rates have reached a neutral level – an idea that is heavily disputed among economists, and a weak GDP report on Thursday convinced investors that bad news are finally goods new again.
Finally, Amazon and Apple pushed the market into the critical gamma level at 4100, before Friday’s OPEX and a relentless bid from systematic funds resulted in a final climax.
Real yield are coming back rapidly and the Fed will certainly not like this market reaction in the wake of record high inflation, and traders are well advised to prepare for some pushback from Fed officials in the days ahead.
For now though, the rally is on, and vol is absolutely getting crushed (see chart below), which will beget even lower vol all else equal.
Gamma discussion:
The new target strike for next week is 4200 with a net gamma amount 63M.
Volume was very high at this level, so we expect that this level’s gravity will increase further Monday (see net gamma chart to the right).
In general the market is now firmly back in “positive gamma land”, which means option dealers are providing liquidity as they will now be forced to trade against the market:
When the market falls, they buy, and when the market rallies, they sell, and those mechanics will dampen realized and implied volatility and suck new systematic buyers (vol control, CTAs) in.
We will provide a more in depth weekly outlook for our pro subscribers Sunday afternoon / early Monday morning.
Until then, have a nice weekend!
Recap: It all started Tuesday, when the market popped higher after the close on Microsoft earnings.
Powell then produced a second leg higher with his remarks that interest rates have reached a neutral level – an idea that is heavily disputed among economists, and a weak GDP report on Thursday convinced investors that bad news are finally goods new again.
Finally, Amazon and Apple pushed the market into the critical gamma level at 4100, before Friday’s OPEX and a relentless bid from systematic funds resulted in a final climax.
Real yield are coming back rapidly and the Fed will certainly not like this market reaction in the wake of record high inflation, and traders are well advised to prepare for some pushback from Fed officials in the days ahead.
For now though, the rally is on, and vol is absolutely getting crushed (see chart below), which will beget even lower vol all else equal.
Gamma discussion:
The new target strike for next week is 4200 with a net gamma amount 63M.
Volume was very high at this level, so we expect that this level’s gravity will increase further Monday (see net gamma chart to the right).
In general the market is now firmly back in “positive gamma land”, which means option dealers are providing liquidity as they will now be forced to trade against the market:
When the market falls, they buy, and when the market rallies, they sell, and those mechanics will dampen realized and implied volatility and suck new systematic buyers (vol control, CTAs) in.
We will provide a more in depth weekly outlook for our pro subscribers Sunday afternoon / early Monday morning.
Until then, have a nice weekend!