SPX Gamma Wrap
The S&P 500 rose 2.0 percent today, as some of the growth concerns were alleviated by fundamental factors as discussed in the morning briefing.
Revealing was the BofA Global Fund Manager Survey that showed that the cash levels of big funds are at their highest position (6.1%) since 9/11 and the largest underweight position in equities since May 2020.
This fact might at least partially explain the relatively "cheap" VIX and the collapse in the Skew Index and in plain terms this likely means that big firms and systematic traders are comfortably hedged by now and observe the markets - which are largely trading on mechanical impulses - from the sidelines.
The chart below depicts the CBOE Skew Index, which measures how expensive put options are relative to a similar call contract. As put buying intensifies relative to calls, the index rises. Under the reverse scenario, the index declines.
https://www.tradingview.com/x/FZjgWh1I/
Absent an external shock or a break higher in rate expectations 4000 remains a solid support as put decay seems to gather momentum as we get further away from that pivotal strike and closer to Friday (OPEX), which creates additional charm support.
It is still recommended to keep an eye on rate hike expectations, which are slowly creeping higher again (see chart below) and in that context it needs to be pointed out, that Powell seemed not at all concerned today about the stock markets recent turmoil.
Powell: "The markets are orderly, their functioning, they are processing the way we are thinking pretty well."
https://www.tradingview.com/x/cd7pbRfP/
Fundamentally or from a monetary standpoint there is little reason to become overly constructive, and we repeat that most of current price action is probably rather due to mechanical flows.
Revealing was the BofA Global Fund Manager Survey that showed that the cash levels of big funds are at their highest position (6.1%) since 9/11 and the largest underweight position in equities since May 2020.
This fact might at least partially explain the relatively "cheap" VIX and the collapse in the Skew Index and in plain terms this likely means that big firms and systematic traders are comfortably hedged by now and observe the markets - which are largely trading on mechanical impulses - from the sidelines.
The chart below depicts the CBOE Skew Index, which measures how expensive put options are relative to a similar call contract. As put buying intensifies relative to calls, the index rises. Under the reverse scenario, the index declines.
https://www.tradingview.com/x/FZjgWh1I/
Absent an external shock or a break higher in rate expectations 4000 remains a solid support as put decay seems to gather momentum as we get further away from that pivotal strike and closer to Friday (OPEX), which creates additional charm support.
It is still recommended to keep an eye on rate hike expectations, which are slowly creeping higher again (see chart below) and in that context it needs to be pointed out, that Powell seemed not at all concerned today about the stock markets recent turmoil.
Powell: "The markets are orderly, their functioning, they are processing the way we are thinking pretty well."
https://www.tradingview.com/x/cd7pbRfP/
Fundamentally or from a monetary standpoint there is little reason to become overly constructive, and we repeat that most of current price action is probably rather due to mechanical flows.
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