Options Flow Report

By Chris Capre

Option Analysis Review

• SPY broadly gained last week with rallies on Weds/Fri driving most of the gains
• Our 640 resistance held for the week with the market at 638.50 in pre-market action
• We start the week with an EU/US trade deal, but that’s not offering a massive rally
• This is a major event week with earnings + FOMC + PCE + NFP so volatility is on deck
  

Major Market Indices & Option Flows

S&P 500 ETF ($SPY)

Weekly Recap & Abstract:

Last week SPY had 2 days of chop, 2 days of gain and 1 day of recovery. All in all, SPY gained about 7 points on the week with Weds/Fri soaking up most of the gains. The EU/US trade deal is officially done which was worth a few points, but we still have Canada/Mexico and China to complete all the while Aug 1st coming this week, so at best 5 deals in 90 days. 

Be that as it may, we think trade deals would only be icing on the cake this week as the major events are earnings (approx. 1/3 of the entire S&P 500 by market cap) on deck this week with META/MSFT on Weds (after close) and AMZN/AAPL on Thurs (after close) all the while we have some mid/solid hitters on deck with V, PYPL, SPOT, UPS, RH, COIN and more all this week.

Combine this with an FOMC on Weds, PCE on Thurs and Fri is NFP – this is one of the heaviest ‘event’ weeks I’ve seen all year. In short, there are a lot of opportunities here for directional plays to manifest.

Our view is that if the earnings come inline, since the FOMC is unlikely to adjust rates, then vol should come down (assuming no PCE/NFP misses) and equities rally, pushing into 645 and 650. On the other hand, if we get a few earnings misses from the heavies (META/MSFT/AMZN/AAPL) and we get an PCE or NFP left tail print, then we could lose the BBP at 635 and easily press into 630 real fast. Breaking 630 puts 620 into possible play so losses can accumulate fast since nobody is expecting anything bad. Basically, nobody has protection/insurance, and all are acting like it’s the 2020 post covid BTFD strategy. 

We’ll talk about our preferred tickers in today’s live BOS session but consider some alternate ETF’s vs only owning long SPY plays while trying to avoid the meme stocks which have gone a bit ‘cray cray’ the last two weeks. 

Until then, here are some option flow points to consider:

• The TGS is now at 640
• The TCS joins the TGS at 640
• The TPS is remaining at 620 to open the week
• Our BBP is now snug below at 635
  
  

Our Trading Plan

• If you believe markets will continue higher this week, we like establishing bullish positions on into the BBP targeting 645 and 650 for the week
• If you believe markets will weaken this week, we suggest waiting for a move into Weds pre-earnings releases, ideally around 640/645 targeting 635 and 630 for the week on a ‘miss’ in earnings
• Tactically we remain neutral < 635 and outright bearish < 630
• We think vol moves lower (hard to believe with VIX this low) as long as we don’t close < 635
  
  

Nasdaq ETF ($QQQ)

What's Happening

• Tech slightly under-performed vs SPY last week
• We still can’t believe it, but NVDA still has cheap call skews, along with SMH
• TSLA now has solid support at 300
• IBIT now has cheap call skews yet is back to 67.5
  
  

Our Trading Plan

• If you remain bullish on tech for the week, we like buying dips into the 566 BBP targeting 570 and 575 for the week
• If you remain bearish on tech this week, we like getting bearish on a move into 570 targeting the TGS at 560 for the week
• We actually prefer owning SMH calls/call spreads vs QQQ calls/call spreads this week
• COIN, TSLA, and SPY all have high call skews
  
  

Earnings Highlights & Option Flow Interest

Abstract:

Some heavies on the week….

Source: Benzinga

Current Option Market Positioning for the Week Ahead

SPY Option Positioning & Open Interest:

Total Calls: 5.3M (+.3M)

Total Puts: 12.5M (+.9M)

Translation: Mildly Bearish < 635

Largest Gamma Expiry: Aug op-ex 14%

QQQ Option Positioning & Open Interest:

Total Calls: 3.2M (+.2M)

Total Puts: 5.1M (+.3M)

Translation: Bearish < 566

Largest Gamma Expiry: Aug op-ex 15%



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