$2.1T in Options Expiring Today
A bit of Climate Science as well
Alright equities are in the green to start the NY session with the overnight session taking its cue from late day strength yesterday. We continue to hear FED and ECB speakers talk about a steady path to contain inflation but we know the inverted curve is telling us something else. We know the pace of these rate hikes will not spur a soft landing, but rather are increasing the chance of spectacular fireworks and volatility ahead. Meaning we can get massive swings both up and down and obviously this is not an easy sea to navigate for our dear global central bankers. None the less we know that there options skew has made it costly to hedge any direction in particular downside risks and we have also seen an uptick in 24hr to expiry options usage. This makes sense right, less Theta lower premium, we get it, but its hardly a recipe for long term success as timing seems paramount when playing the game this way.
As far as what’s expiring today:
The Put/Call ratio has blown out:
Seems a bit overzealous to us and more akin to imposing the market has caught many by surprise in regards to the rebound in play and that the retail is well wrong and when everyone expects a big drop and then we don’t get it, well it becomes a chasing game to the upside. With SPX skew beaten down, we will not be surprised to see a melt up. We know the 4000 strike is huge in the SPX which seems to have a basis of about -9 points to the future, so we would suspect the 4010 area in the futures to be an important level today and expect buyers to show up around 3948/55 for support:
So the 4000 and 4010 week 3 futures options should see some hedge activity and we would suspect a test of these levels and to have options related hedging as an attractor.
As far as the Nasdaq futures:
Another chart we are looking at is January Crude Oil, we are getting close to a major Fib. target/reversal spot of $78. We would suspect buyer support here both technically and fundamentally so be on the lookout around this level for support as January Crude is just below $80.00 this am:
We like the consolidated effort out of the US Bond Future here as well:
On another note as long time readers know we love talking about science and as much as we like the markets, quite often the volatility in climate is also right up our alley. We do not believe that mankind has much of a say when it comes to controlling the climate, or anything for that matter, but we do like to always give our readers a unique perspective on why we look at things in a different lens from main stream. One of the things that we definitely hate is when people use the term “global warming.” It is the strangest term ever as our planet has variable temperatures at varying levels of atmosphere, so what does one use as a benchmark? Generally surface temperature, but honestly can we get the gist of a puzzle by looking at one piece??? NO.
Ok enough of the rant, here is the chart we are watching and nobody seems to care, why? Because it doesn’t fit the current narrative. However for volatility guys like us, well, this definitely stands out. Anyway take a look and see if you think this year is shaping up quite differently than the prior 40 Year Average…if you don’t see it as anomalous, well then you may as well put your tail between your legs and hide in a corner…because it should stand out:
The map illustrates how the surface of the Greenland Ice Sheet gains and loses mass on a daily basis. This difference between snowfall and runoff is known as the SURFACE mass balance It is always positive over the course of a year as not all fallen snow runs off the ice sheet again. -Danish Arctic research institutions
The real question becomes if this is a start of a new decadal trend higher, well does anyone honestly think the world will be getting warmer? The bigger question is how are our global leaders preparing for an uptick in weather volatility? How are businesses preparing? How are you preparing? Now this is not a call to action, but rather a seed to plant in your head to do your own digging, see for yourself what you can surmise. We have been following proper science, science like the electromagnetic universe, plasma physics, the real observable, repeatable and measurable science for a decade. Why? Because we are a study of what works, what we can manage and managing theoretical anything leads to theoretical based assumptions and we are sorry, that just ain’t good enough!
Anyway good luck today and do not be surprised if we peg that 4k level in SPX and just beat around the bush there all day long, but hopefully we get some vol to take advantage of! Till next time…
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