Option Analysis Setups: $SPY Should Be Volatile This Week
It's all about the FOMC, VIX op-ex, and monthly/quarterly op-ex this week
Weekly Recap:
● After an acceleration of inflation, markets are repricing
● In the shadow of the increase inflation, protection was bought
● This forced dealers to sell, reducing liquidity
● Volatility has increased, but this could help post FOMC
Market Abstract:
For the first time since May 31st, the range support broke (to the downside) opening the floodgates. Markets liquidated over 5% in the final two trading sessions of last week, closing on the lows.
The clear impulsive and corrective series is on display in the chart, along with the volume spikes on the selling, suggesting this ‘risk off’ event was aided by real money macro players selling.
On the heels of this 5% liquidation, the VVIX posted its first weekly gain out of the last 7, gapping on Wednesday (ahead of the sell off on Thursday in SPY).
This is the uptick in vols we were worried about, and why we’ve kept long vol exposure over the last few weeks as we anticipated this.
VIX almost hit 30 on the week before pulling back on Friday, even though SPY’s continued lower in the last 6 hours of trading (meaning they both traded lower).
With the current positioning and option flows, dealers will have to sell if markets move lower, so this will only exacerbate downside moves.