As mentioned on recent Orbit videos (and on twitter) traders can be on the lookout for a few signs this week that the vega/gamma backdrop of the market has shifted on a dime. 0DTE expected moves of just 0.5% – 0.6% make sense (they were twice that last week when VIX was 22) if dips get bought, rallies find sellers etc. This would be a complete 180 from the steady declines we saw in October followed by the face rip higher we saw last week.
The first couple days of this week have indeed been low realized vol days (compared to the prior few weeks) resulting in a slow grind higher in SPX QQQ etc. Some things to continue to watch when the market does finally go red, does that move get bought at about the expected move or does it plow right through to the downside? And do green days look more like slow grinds higher rather than the FOMO panic buying we saw last week?
Market makers can get jammed with options after a VIX collapse. Here’s how that works and why it can stop the market on a dime. The VIX was 22 going into last week. Market makers are sellers of options with the VIX 22, but they are not “all in” sellers because there’s a chance IV goes higher on a market capitulation where they would want to really sell alot of vega with the VIX 30 or higher. With the market reversal higher last week they never got the chance to sell 30 VIX, and to add insult to injury, vol collapses so quickly they are getting sold options the entire rally, while the puts they sold at the lows are so quickly out of the money they no longer even register as short vega anymore. So out of nowhere they may be getting LONG options with the VIX 18-19. That loads the market with gamma and buyers of stock below and sellers of stock above (as all that premium needs to be scalped to cover theta. Market makers would then keep lowering vol across the board.
Those are the conditions where you can sometimes see a really low VIX as the day-to-day vol of the market gets crushed and alot of folks are choking on long straddles.
Of course, it is still earnings season, and we are seeing some very large moves in individual stocks. Today we hear from Disney among others (full list below). Powell’s speech this morning is potentially market-moving.
Trending / Movers:
- Rivian Automotive Inc Cl A (RIVN) +7.29%
- Roblox Corp Cl A (RBLX) +13.40%
- Upstart Holdings Inc (UPST) -26.39%
- E-Home Household Service Holdings Ltd (EJH) -10.68%
- Robinhood Markets Inc Cl A (HOOD) -8.30%
- Toast Inc Cl A (TOST) -17.39%
- Unity Software Inc (U) +0.15%
- Take-Two Interactive (TTWO) +9.27%
- Upwork Inc (UPWK) +21.05%
Today’s Earnings Expected Moves
- The Walt Disney Company (DIS) Expected Move: 5.38%
- The Trade Desk, Inc. (TTD) Expected Move: 10.15%
- Corteva, Inc. (CTVA) Expected Move: 3.80%
- Manulife Financial Corporation (MFC) Expected Move: 3.33%
- Franco-Nevada Corporation (FNV) Expected Move: 4.00%
- Take-Two Interactive Software, Inc. (TTWO) Expected Move: 9.43%
- HubSpot, Inc. (HUBS) Expected Move: 8.60%
- AppLovin Corporation (APP) Expected Move: 13.36%
- MGM Resorts International (MGM) Expected Move: 4.36%
- Unity Software Inc. (U) Expected Move: 11.81%
- U-Haul Holding Company (UHAL) Expected Move: 7.43%
- Jazz Pharmaceuticals plc (JAZZ) Expected Move: 6.10%
- Instacart (Maplebear Inc.) (CART) Expected Move: 7.10%
- Duolingo, Inc. (DUOL) Expected Move: 9.80%
- Affirm Holdings, Inc. (AFRM) Expected Move: 13.82%
- Lyft, Inc. (LYFT) Expected Move: 11.95%
- AMC Entertainment Holdings, Inc. (AMC) Expected Move: 11.93%
- Marathon Digital Holdings, Inc. (MARA) Expected Move: 7.96%
- At 09:15 AM (EST) Fed Chair Powell Speech Impact: High
- At 01:40 PM (EST) Fed Williams Speech Impact: Medium
Unusual Options Volume: DDOG (+1190%), TOST (+1061%), LAZR (+990%), RBLX (+954%), MDB (+923%), SNOW (+885%), HOOD (+884%), EBAY (+853%), UBER (+766%), HIMS (+759%), UPST (+746%), RIVN (+592%), ADBE (+493%), ZION (+485%), SQQQ (+434%), TWLO (+427%)
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