SPX Gamma AM
Good morning.
Volatility rises to the highest level since early May in pre-market trade, while future markets continue to suggest about 11 rate hikes.
Put options with a strike of 3700 experienced high volume on Friday, while fresh data shows an increase in open interest, which suggests that investors continue to price in the possibility of a "catastrophic" scenario post FOMC.
Given the high amount of negative gamma (-932MM), extreme moves in both directions should not be ruled out.
Sharp mechanical rallies are possible, if the VIX gets compressed for whatever reason, but a sustainable rally is unlikely pre FOMC, and traders should resist the urge to BTFD.
Some color from Apollo Global Management CEO Marc Rowan:
Volatility rises to the highest level since early May in pre-market trade, while future markets continue to suggest about 11 rate hikes.
Put options with a strike of 3700 experienced high volume on Friday, while fresh data shows an increase in open interest, which suggests that investors continue to price in the possibility of a "catastrophic" scenario post FOMC.
Given the high amount of negative gamma (-932MM), extreme moves in both directions should not be ruled out.
Sharp mechanical rallies are possible, if the VIX gets compressed for whatever reason, but a sustainable rally is unlikely pre FOMC, and traders should resist the urge to BTFD.
Some color from Apollo Global Management CEO Marc Rowan:
- Long term valuations are still elevated.
- Fed seems "deadly serious" about getting inflation under control which means liquidity will come out of the system.
- There are no perfect shelters from rates.
- He thinks there will be a weakening of the economy later this year and into 2023.
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