There Are No ‘Shoulda, Woulda, Coulda’s” in Trading

Weekend risk exists.

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Our View

No one has talked about this much, but the short options premium sellers caused huge problems at some of Chicago’s clearing firms. The firms try to do their best to keep it on the down low, but I was told that some of the firms took some big hits after margin and liquidation calls went out. 

One big account that was either a CTA or a hedge fund was told to reduce positions by 45%  before the markets opened and he waited three hours and the ES dropped 3% and NQ dropped over 6% and his $300 million dollar fund dropped $276 million. 

People ask me all the time about when the margin calls are sent out — and yes they still do the 10:30 and 2:00 margin calls — but now the risk systems are set up to send the calls out 24/7. I did a full story on short premium selling, but it was too big. I will clean it up and use it Monday.

Our Lean 

Yesterday’s lean: “I think there will be big movement in both directions with a downside bias. The 50% retracement of yesterday’s range is 5278.50. Sell any 75 to 125 point rips.” 

There are no shoulda, woulda, coulda’s in trading. I coulda changed the Lean in the morning but I felt that if I did that the ES would reverse again, (which it did not do). HandelStats mentioned 5445 earlier this week, but after he did the ES dropped 140 points. Maybe that’s where the ES is headed, who knows.  

I’m sorry I was not more on the ball. I still think there is Iranian downside risk and I don’t want to get complacent. 

Our Lean: If the ES gaps higher, I want to sell the gap-up or the first rally above the gap-up. Remember the Mr. Top Step rule that says the ES tends to go sideways to lower after a big up-day. I have a downside bias for the day, looking to sell the bigger rips. I also wonder how many people want to go home long over the weekend — i.e. the potential for a late-day walk-away. 

MrTopStep Levels:

MiM and Daily Recap 

The ES, which had closed at a low and at a significant discount to the S&P cash, rallied all the way up to 5285.25 on Globex and opened Thursday’s regular session at 5280.75. After the open, the ES traded down to 5275.50, rallied to 5285.00, pulled back to 5272.75, and then rallied to 5285.50 at 9:37. It subsequently sold off to 5259.75, a 25.75-point drop on volume of 108k at 9:54. After the low, the ES rallied to 5326.75 at 10:52, pulled back to 5306.00, rallied to 5327.25, pulled back to 5310.50 at 11:50, and then rallied to a new high of 5332.50 before selling off to 5309.00 at 12:22.

The ES rallied to 5355.50 at 2:22 and then made three lower highs at 5348.00 at 2:56, 5349.75 at 3:12, and then dropped to 5323.75 at 3:38. It rallied to 5348.50 at 3:45, pulled back to 5338.75, and then rallied to 5344.50. It traded 5342.00 as the 3:50 cash imbalance showed $160 million to buy, then rallied to 5346.00 before selling off to 5334.00. It then popped up and traded 5348.25 at the 4:00 cash close.

After 4:00, the ES traded up to 5361.00 at 4:02, pulled back to 5350.50, rallied to 5359.00, and settled at 5353.00, up 150.75 points or +2.90%, its best single-day gain since November 2022. The NQ settled at 18,558.00, up 591.50 points or +3.29%. The 10-year note yield climbed back near 4%, closing at 3.997%. Bitcoin jumped 12% after Morgan Stanley announced that wealth advisors are now permitted to recommend spot Bitcoin ETFs to their clients and the resolution of a SEC lawsuit.

In the end it was an all-day buy program that started on Wednesday’s close when the ES closed at a big discount to the S&P cash. In terms of the ES’s overall tone, it didn’t matter if it was a 5 point drop or a 30 point drop, it was bought. In terms of the ES’s overall trade, volume was lower: 380k ES traded on Globex and 1.534 million traded on the day session for a total of 1.834 million contracts traded. 

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: 

A thorough lack of call gamma anywhere on the map means that the dealer-mechanical sticking points are essentially gone, and instead regulated by tug-of-war between sellers and buyers stalking their chosen levels and working to exhaust counterparty volume until reversals manifest.

However, strong put gamma is all that support needs, or else it might end up being too sticky and mute the magnitude of a bounce. SPX has managed to hook itself above 5300, and this is now strong support as backed by that 5200 Put Wall (no help from 5250).

We expect market gamma to drop significantly tomorrow, and we will be entering into yellow-light safety conditions (above the Put Wall and below the VT). Medium-short term, when that put gamma underneath 5000 starts to look hopeless and those positions get closed, then this would be the start of a fueled rally.

However, we are still in risk-off territory and we like keeping size moderate and risk contained in these conditions.

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!