Let the Chips Fall

$NVDA is a darling, how much longer does the ride go?

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Setting the Table:

• Stocks have been going through a choppy week, distinctly escaping the orbit of the 4500 magnet we’ve been watching for the past month. The Jackson Hole conference is adding some structural event vol to the market, though compared to last year’s conference this feels significantly less fraught. It’s unclear what the dynamic will be around how to raise, pause on, or lower rates. 

• The effect of Jackson Hole on LIQ has been real. Yes we’re heading into the final days before Labor Day, but these are two month lows. Incidentally the draining of liquidity was caused by a distinct float up - June returned 6% on the SPX. Liquidity is about uncertainty, not market direction. Bears get nervous on the way up.

  

• For current options pricing, the most important factor right now is the tightening spread between realized and implied vol. To the extent that there is latent uncertainty in the market, a bid persists for options coverage. But there’s always uncertainty. With enough of a move away from the tight range we’ve seen, VRP has finally ticked negative at 30 days.

  

• It’s interesting to compare this to a 10 day figure. We see numerous signs of the VRP ticking negative. For those considering shorter term options strategies, this is important to remember. With only a few “coin flips” i.e. short duration, it’s a choppier outcome relative to your signal.