• Options Activity: The call wall is now 3275 at the 34 delta. Puts mark the bracket low at 3225 and the 29 delta. The “flip point” is unchanged …sitting at 3200.
• Valuations: Calls became pricey today when it appeared the US and Iran would not be going to war. Call volume spiked at the open. OTM puts still getting bid as investors continue to feel uneasy with this rally.
• Volatility: In after hours, following Iran’s military action, volatility futures have spiked but rapidly defervesced.
• Auction Market Process: We remain in vertical developement with fairest price between 3240 and 3250.
• Safe Havens: Inflows with the news of a missile attack …then whipsaws in the Yen, Gold, Oil, and the 10-Year.
• Macro: Tehran delivered a calculated response to Trump’s decision to assassinate Soleimani, one meant to satisfy Iranian calls for revenge without provoking full-blown war.
Taken Together: Yesterday’s Premarket Report accurately predicted elevated event risk. It also accurately predicted the level at which zero gamma would force re-hedging …which turned out to be the bounce point. But predictive analytics could not predict what would happen when price got to 3200.
In retrospect, one thing would have made the prediction of an overnight drop followed by a bounce – the fact that in today’s market, auction retests consistently get bought. Whatever downside move occurs, repo, balance sheet operations, and central bank liquidity protect the bull – spelled “asset bubble.”
Predictive metrics are consistent with a small near-term correction …some profit-taking …a pause after today’s run. Today was also the third day pointing to distribution among Dark Pools. I’m not seeing information embedded in options prices or the auction process signaling a selloff.