Last night, we laid out our view on today’s $2.1 trillion opex, which following a record spike in the put-to-call ratio is just begging for another violent delta squeeze higher in risk. In any case, for a more complete picture, here is the view of Goldman superstar trader Brian Garrett who shares several quick thoughts ahead of today’s option expiration.
1. Today brings $2.1 trillion of option notional expiry: $845bn of this is AM settled index options with the other $1.2 trillion expiring on the close… highlight that almost $200bn of SPX(pm) is in open interest, we will continue to watch this theme over time as investors potentially look to avoid SQ risk overall … Next month expiry is shaping up to be one of the largest spx expires in decades (currently 3.3tn) – largely driven by put open interest which is at 2y highs!
2. The market is the longest of SPX gamma since the summer with 3950-4000 magnetized all week … the desk believes a lot of this occurred following CPI print last week (chart) as options were hastily monetized and SPX rallied into previous overwrite strikes (dampening effect)
3. The long gamma dynamic will disappear following expiry (table below) in what feels like a bullish set up for the vol market in the face of a “seasonally” perceived quiet period for stocks … looking at the data, today is extremely similar to the setup into august sq, with dealers long into the print and short thereafter (reminder that Aug SQ marked the highs of 2h22 at ~4300 spx)
4. Derivative sales desks across the street love quoting “spot up vol up” and “spot down vol down” dynamics … 2022 has been a poster child for this relationship as the correlation between spx spot and spx vol rarely trade in this fashion (full disclosure, on avg this is still an inverse relationship but much less so)… as such, our exo desk has been very active in options (put or call) with realized vol budgets or vol KO’s (alternative for high implied but grinding markets)
5. Twenty seven and a half sessions remain between now and year end … here is a landing spot for our macro outlook for 2023 … “top ten themes” were published this morning along with our note “this cycle is different” … we had a webinar this morning on the topic, its very much worth an hour of your time
6. Not the rates expert, but the 2y10y curve closed at the most inverted level in 40 years last night