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While today’s price action felt unstable and even a bit bizarre, in some ways it was, as noted yesterday, fairly predictable. Implied volatility levels on Wednesday night went out extremely high, and historically, when the VIX 1-day is elevated heading into an event, the market tends to experience a strong post-event rally once that event clears.

We had two major events lined up: the jobs report and NVIDIA’s (NVDA) results. The VIX 1-day closed yesterday at 26.9, which helped fuel the 1.9% rally into the 10:00–10:30 a.m. window.

The issue I highlighted yesterday was that the rally would only last until implied volatility stabilized and the cash drain took over. Today was a Treasury settlement day—not a large one at $18 billion, but given how much cash has already been taken out this month, each additional settlement appears to compound the pressure. So even though the size wasn’t huge, it still added to the tightening effect.

In other words, the ingredients for today’s move were already in place.

The severity of the reversal, however, was the part that surprised.
 

In some ways, what made things even worse was that NVIDIA was driving much of the early strength. The stock was up roughly 5%, but, as noted in last night’s write-up, NVIDIA was going to have a very tough time clearing the $195–$196 region. That played out exactly as expected once trading began. The $190 calls were up, but that probably prompted enough selling that the stock couldn’t break above $196, largely because of the huge gamma cluster around $195 and $200 and because it was sitting in a positive-gamma environment.

When you factor that in—along with all the higher-strike calls that were already deeply underwater—it felt like only a matter of time before the $190-and-above crowd began unwinding. Once NVIDIA started to roll over, that unwinding triggered a snowball effect. The $190 calls, which closed today at $0.34, were around $5.50 yesterday and, even during the strongest part of today’s session, were only worth about $7 for the first 30 minutes. As soon as those calls fell below $5 around 10:49 a.m., volume surged, and that was essentially the breaking point.
 

As for tomorrow, the VIX 1-day closed at 29 today, and I genuinely do not know why. It opened sharply lower, dropping to around 13, and then just reversed and took off. The only major event tomorrow is the November monthly options expiration, and that alone does not justify a VIX1D at 29. I don’t know if someone knows something or if there’s a mispricing somewhere, but something seems off. Volatility was up across the curve, but even then, this still looks odd.
 

There are plenty of other things we could talk about, but my crystal ball is out of juice. I’ll charge up and be back over the weekend for you.

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