This is something @spotgamma & @themarketearhave touched on too.
Why be attentive at this juncture?
Let me explain this SPX up VIX up dynamic ☟
We’ve got a couple of things going on.
#1 @GoldmanSachs $SPX gamma profile analysis (see institutional flow) makes basic assumptions where long/shorts are in the street
So, what do we see in their model?
@GoldmanSachs is telling us dealers are long $3b of gamma.
But if $SPX were to rally +4-5% (past 4.3k), they’d become flat to net short
Why’s this interesting?
Suggests lots of low delta upside bought by clients (more considerable gamma exposure by dealers if 4-5% higher)
But wait, there’s more…
$SPX fixed strike vol price action reinforces this notion of reach for upside by dealers as we broke higher.
It confirms that beyond ~4.3k in #SPX, there is nothing pinning the market & realized vol might spike.
#2 Another takeaway is the massive clips (biggest in ages!) of $VIX calls that got bought.
While we can’t tell the motivation, some big players felt the need to buy a whole lot of calls in March #VIX.
This action helps with the whole SPX & VIX up dynamic
The street had to sell options and delta hedge them via futures, creating a natural bid to the #VIX.
The bid wouldn’t allow the VIX to go down despite $SPX moving up before the pullback on Friday.
There you go 🤝
These reads on options activity keep us in tune with the overall market positioning.
And as a result, makes us more prepared to design our next structural and tactical portfolios.
Ultimately, it is all about maximizing return and mitigating risk.
I’m super grateful you made it through this thread🙏
Please let me know what you think in the comments, if you enjoyed it, or if you have any thoughts/questions!
And don’t forget…
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