Taming the Technoking

Stock is settling and vol is down - sell the storm or brace for the calm?

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Setting the Table:

• The major theme in the markets this summer continues to be a lack of a real theme. The intense inflationary news cycle has mostly calmed with indicators stabilizing, and at a high level earnings have been positive but not spectacular - as much cost cutting as growth. SPX has been pinned to the important 4500 level for weeks now. 

  • With the VIX floating up from its lows, an interesting component to this is from the downside put skew. It’s partly ATM vol rising, but the VIX also measures the shape of the curve. In Tuesday’s edition of Trading Opportunity we pointed out how downside puts are now trading over 2x the price of upside calls in $SPY.

    

• Part of where this pinning might be coming from is robust OCC volume - 49M traded yesterday. Heavy options volume relative to slower summer stock volume will tend to cause dealer greek hedging to overwhelm the markets. 

• The top names like SPY and AAPL have maintained a steady liquidity profile, but if we sum all of the Top 200 names, there’s been a bit of a drain throughout August. Possibly this is people on vacation, partially people getting nervous about valuations.

  

• AI is everywhere. ChatGPT isn’t writing this newsletter, but it’s certainly speeding up my development cycles. Most directly we’ve seen NVDA shares skyrocket over the past 10 months as they sell the picks and shovels for this revolution. As other tech giants start announcing their own integrations of the technology, their shares too have been boosted. Are we ready for DotCom 2.0?