Good Morning! A large drop and rebound yesterday as $MSFT had a gloomy forecast, but why the rebound? Yesterday was driven by 0DTE flows almost exclusively after the initial drop, as noted in the public discord room.

A lot of clamoring over GDP this morning...
But the options market doesn't seem to care, pricing a 1-day straddle at $31, which would be the same if there was no catalyst. These events recently have been met with decent market movement prediction and data forecasts within range, but this one is a little curious.
Last month we saw a sharp downturn in retail sales, contraction in manufacturing and services production, and a construction and housing downturn. I'm curious about how economists believe GDP will grow at a 2.6% annualized real rate, and GDPNOW expects 3.5%. Where is the growth?
I presume services and govt. spending? But there are now caps to govt. spending as we have reached the debt ceiling, so that cannot be optimistic going forward. Regardless the market is sanguine about these concerns and focuses on Fed action,
which makes the case for liquidity as the majority driver of markets, including dealer positioning in #volland which has shown charm bullishness with a capped vanna upside. It has settled in a little higher range than anticipated, but I expect similar action to continue,
With shocks more likely to the downside as we saw yesterday.

But again from an economic perspective, I'm curious about this GDP report and the contributions from each subsection. If it runs counter to these other reports, it would have me do a deeper dive for reconciliation.

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More from @WizOfOps

Jan 27
I have received a bunch of questions about how I knew 3 weeks ago to be bullish for February from #volland. Ever since the CPI report in January, the options landscape for dealers has been the same as the big bull run... that is, puts bought and calls sold by customers.
That presents as sold puts and bought calls by dealers. That created $91B in open net positive delta in $SPX, seen in the #volland picture. Why is this bullish? In short, this typical GEX formation creates a lot of negative charm to push markets up... Image
Charm is seen in the picture with the negative aggregate charm highlighted in green (for bullish). To have such high charm this early in the option month is a big deal, as it will only grow the closer we get to Feb. opex. As price increases, vol typically decreases... Image
Read 9 tweets
Jan 27
Good Morning! Yesterday's GDP number was decent, starting markets higher that were driven thereafter by 0DTE flows. Today, the "Fed preferred inflation gauge" is demanding only a $32 straddle price, $1 more than GDP and in line with typical daily prices.
In other words, the market doesn't seem to care. This simultaneously makes the market unhedged and more dangerous, but also that this event is not a concern to traders,y and event vol has been well priced recently. I do see a lot of concern in financial and social media...
But to get the real concern, the straddle price is the more accurate gauge. If you feel the event is more significant, you may have an edge, but more likely you have a bias. Event vol rarely misprices the event.

#volland is showing the same bullish formation...
Read 6 tweets
Jan 25
Good Morning! Yesterday was a dull day, but it was also indicative of the negative vanna above the 4000 $SPX strike. A vol crush that resulted in slight downside. Positive correlation between vol and spot price is how negative vanna acts.
We are now entering earnings season, and $MSFT reported a disappointing forecast that is scaring markets overall. Like yesterday, the path of least resistance is still down, and now that pre-market is below $SPX 4000, I expect modest downside but nothing too impulsive this week.
Earnings reports are going to be the next signal of slowing growth. The manufacturing and services surveys, retail sales, consumer confidence surveys, and other economic reports are subject to sampling bias and other problems that can be explained away.
Read 5 tweets
Jan 18
Good Morning! There were three "catalysts" last night into today that the equity market in particular was not concerned about. By that I mean the 1DTE straddle at the end of the day yesterday was priced at $33, which has been the typical price recently.
The first was the BoJ decision that all the macro analysts have been looking at since last month they raised the 10y rate 25bps. As it turned out, there was no change. Other markets including metals, bonds, and the Yen were prepared for a large move, but oddly equities weren't.
Again, oddly, the Yen rallied from its lows, bonds and metals bounced, and while equities had an initial positive reaction, they are muted now. In other words, the equity volatility outlook was correct.

The second was volex,
Read 12 tweets
Jan 17
Good Morning! Last week we saw some relentless buying thanks to an in-line CPI print last Tuesday. We are now bumping up against the 4000 $SPX mark. Now the market must make a decision. 4000 is negative gamma, so we will likely see a break one way or another, not a wall. #volland
And it will be determined by IV. 4100 is solidly positive vanna, negative charm going into opex, which portends a rise as long as IV is declining. But we just experienced a vol crunch with 4300 keeping price muted. VIX expansion has occurred when it dropped below 20 recently,
So the question is, have we entered a new vol regime? Is VIX now lower or will we expand again? With the BoJ decision tomorrow morning, a very underrated catalyst with no event vol, I think there is a good chance IV will expand. The BoJ has yield curve control on the block.
Read 8 tweets
Dec 30, 2022
Good Morning! Today is the last trading day of 2022, and good riddance. It has been a difficult year. Going into 2023 there are plenty of risks and opportunities that are at the fore, but typically the ones that are not accounted for are the most dangerous. Which would those be?
Inflation and the FOMC are valid concerns, but they are accounted for. The FOMC does a decent job communicating its intent to revalue equities while crushing demand to crush labor supply-driven inflation. While there are disconnects, they aren't my greatest macro concern.
Geopolitics are a concern, as Russia and Ukraine continue fighting and there is constant sabre rattling from China to Taiwan. I do believe at some point China will attempt to invade Taiwan, but the mobilization for that will telegraph when. Meanwhile...
Read 9 tweets

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