Volatility Jumps as VIX +30% Since Last Friday

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Our View

After all the margin calls and options rolling on Wednesday, things pretty much picked up where they left off — more short-covering rally to sell. 

We had some big down bars yesterday — one drop was 50 points. While it came early, I’m sticking with the weaker seasonals. There were some decent rallies, but when the buying let up the futures went immediately offered. 

Our Lean

Do you think the $5 trillion in expiring options is to buy? I don’t. I’m not saying there can’t be a low made in here, but this shit acts like shit. The markets have just gone too far to think in terms of a one- or two-day decline. 

That said, if the ES gaps down 10 to 20 points this morning I’m buying the early weakness and selling the 30 to 50 point rallies. If the ES opens higher, I want to be a seller — I’m just not sure about the open. 

From high to low, the ES has sold off 150 points in the last two days. The 50% retracement of that range comes into play at ~5646, while the 50% retracement from yesterday’s range is at 5617. 

I am leaving it at that. The ES is in a correction phase…for how long or how far is anyone’s guess. 

MrTopStep Levels:

MiM and Daily Recap 

After a dismal day of trading on Wednesday, the ES rallied all the way up to 5664.00 on Globex and opened Thursday’s regular session at 5651.75. After the open, the ES traded 5646.75 and then rallied up to 5655.25 at 9:40. It then sold off to 5643.25 at 9:45, but rallied again to a new high at 5661.75 by 10:18. Just before that, there was a rumor circulating on Twitter that China was preparing to reclaim Taiwan, causing the ES to sell off to 5654.25. It then rallied to a lower high at 5659.75, dropped 37.5 points to 5622.25, rallied to another lower high at 5643.50, and then sold off 51.5 points to 5592.00 by 12:06.

After reaching this low, the ES rallied to 5602.00, then sold off to a new low at 5692.00, and rallied again to 5611.25 at 1:06. It traded down to 5600.50, rallied to 5615.50 at 1:25, and then dropped to a new low at 5580.00 by 2:31 — a drop of 27.25 points. After the low, the ES rallied to 5594.75 at 3:03, then sold off to another new low at 5570.25 by 3:15, and finally popped up to 5605.00 at 3:49, trading at 5504.75 as the 3:50 cash imbalance showed $1.9 billion to sell. It traded down to 5586.50 and closed at 5594.00 by the 4:00 cash close. After 4:00, the ES slowly rallied to 5602.50 and settled at 5600.00, down 43 points or -0.76%. The NQ settled at 19,934.75, down 68.75 points or -0.34% by the 5:00 futures close. Bonds closed down 23 ticks, gold was down 0.14%, crude oil was down $0.75, and Bitcoin settled at 64,415, down 985 points or -1.24%.

In the end, the ES and NQ followed the same pattern as they did on Wednesday — every rally failed. In terms of the ES’s overall tone, the markets were weak. Trade volume was higher, with 2.436 million contracts traded overall.

Technical Edge  

Guest Post — SpotGamma

SpotGamma is one the the shining stars of the options markets. If you have never heard of them or already know of them and have never signed up for their options flow products or the SG Academy, I fully suggest you check them out and add them to your trader’s toolbox.

Here’s a snippet from them: 

​​TLDR: we are on “bounce watch” looking to play an equity bounce into month end off of either lows put in Monday/Tuesday, and or tests of SPX 5,500/QQQ 480.

Today’s options monthly expiration is of decent size, but far less notionally than that of a quarterly expiration like last June, or the upcoming Sep expiration. You can see this in the plot below of the major indexes, which shows option delta notional for calls (orange) and puts (blue) at each OPEX.

Single stock expiration size is more idiosyncratic – some major tech names like NVDA or AMZN have large expirations (you can sort for these in EquityHub with Scanners->Other Scanners->Largest Gamma Expiring This Friday).

So, while the index expiration doesn’t appear to be all that large, this heavily-concentrated market can be swung by expiration-mechanics of large single stocks. That “ups” this OPEX importance.

Economic Calendar

For a more complete Economic Calendar see: https://mrtopstep.com/economic-calendar/

Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!