• Options Activity: Friday’s drop in gamma exposure is physiologic, not pathologic and related almost entirely to OPEX. Hedging activity portrayed by new volume and open interest in March is noteworthy. Gamma flip now lies at the put floor (3250). Short calls at 3400. Dark pools remain steady buyers.
• Valuations: Calls underpriced and OTM puts were bid up as investors continued to hedge against the possibility of sharp declines. Time to be a premium buyer. This may account, in part, for a significant amount of calls being rolled up and out to March.
• Volatility: 24 Jan 20 Weeklys pricing in a $27.81 move up or down by the close of this Friday. This represents a contraction since last week.
• Auction Market Process: Following last weeks sudden range extension, a period of balance is likely.
• Macro/Currencies: Gold’s reaction to the Asian index lows, last night, is notable. CFTC Commitments of Traders shows speculative net futures trader positions in $DXY to be firmly in a long position but shrinking and currently in its weakest position since June 2018.
• Calendar: CFOs in Davos, central bank meetings, and more earnings. On Friday, US housing jumped to 1608K from 1380K, the biggest one-month gain since October 2016 – likely due to warm weather and low-rate steroids.
After 23 weeks, market took out the upper margin of its implied move …almost a 2-sigma move. What makes this so unusual is its occurence in the absence of a preceding selloff. Managers seeking yield, moving into $HYG, a relatively illiquid and high risk asset. In another effort to obtain yield and simultaneously provide safety, utilities got a bid last week.
To sustain the rally, we most need to see: strong earnings and guidance and high performance in the Financial sector.