Brandon Chapman pulled up the volatility curve after today’s close. Three month VIX futures sit 22% above spot VIX.
Spot VIX closed near 15 and a half. That premium prices a 5% to 10% correction in the S&P 500.
The VIX finished below 15 on Friday. The futures market spent today saying the opposite.
Contango in the /VX curve is steep across September and October. Brandon reads that structure as bearish.
Skew supports it. The reading dipped below 130 last Tuesday. It popped right back above and sat near 132 and a half on Friday.
The tape itself barely moved. The S&P 500 closed at 773, which landed exactly on max pain.
775 stood as the call wall all session. Dealers sold into strength and bought into weakness around it.
Brandon traded that framework in the morning. He closed his spread for a 100% gain on the break under 775.
The structure underneath is where this gets interesting. Call side open interest still holds nearly all of the gamma.
Put volume began stacking below 773 today. The put to call ratio started the session at 0.9 and finished at 1.1.
The catalyst showed up in the bond market. TLT dropped nearly 1% as the 10 year yield rose 0.84%.
Higher yields press utilities and real estate. Technology feels it too, because names like Nvidia (NVDA) finance heavy GPU purchases.
Semiconductors led the downside today. Real estate broke below its trend line after BlockHunter flagged big prints in AGNC and IYR last Thursday.
Here is what Brandon walked through in tonight’s video:
Three month VIX futures trade 22% above spot VIX. That curve prices a 5% to 10% correction, which puts 738 in play on the downside.
Max pain sat at 773 and the S&P 500 closed at 773. The 775 call wall carried $3.5 billion in gamma after topping $4 billion earlier in the session.
Put gamma below the market measures only $500 million. A gap under 773 could push negative gamma toward $1 billion and accelerate the next leg.
Oil surged 5% on the Iran uncertainty. XOP put volume outpaced calls with 170 strike puts lifted at the ask, so the energy trade is weaker than the tape suggests.
Gold drew 110,000 contracts at the 455 strike for September 18. Brandon prefers gold over silver and GDX if the S&P 500 starts to weaken.
Brandon does not expect this range to break easily. He marks 780 on the upside and 758 on the downside into Friday’s expiration.
The gamma print tomorrow morning decides the pace. A negative gamma environment turns a grind into something faster.
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