Good morning! Options still slightly overpriced despite the overnight rally. There was a slight vol crunch up near the close yesterday, so while the VIX/SPX relationship is still favoring more upside, it will be limited.
I gave a target of 4400 a couple of days ago, and that seems easily attainable, might reach 4420. This rally will likely end by early next week. A lot of puts were purchased this month, and the gamma unwind will be rocky. Also, MMs are still component gamma positive until 4400.
As a side note, McConnell did us a favor. By kicking the can down the road, he gave a template of exactly what the market looks like with the threat of debt ceiling issues. so in late Nov, we can use early Oct as the template for a trade. Thanks Mitch!
Someone asked why I positioned vega+, delta+, and gamma-. Before I started posting regularly, I saw risk in the debt ceiling. I knew that if it got contentious, VIX would likely overstate, but eventually resolve as the debt ceiling resolved. vega+ was an implicit hedge on delta+
I had other hedges too, basically to weigh vega and vomma (the 'gamma' of vega) appropriately against delta and gamma, but that's the idea behind that trade. It is working out well, and I'll start to unwind a little bit today and tomorrow.
Looking forward, as we see option unwind next week, I think it will be a good opportunity to #BTD and go long gamma bullish, at least for the next couple of weeks after expiration. $SPX
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