Options Flow Report

By Chris Capre

Option Analysis Review

• SPY gained 4pts last week as the 1st FOMC rate cut in a while posted
• Ironically, most of the gains were in pre-market the day after the FOMC
• This week we have no major events, so a ‘free running’ flows week
• Due to high call skews and Sep op-ex passing, we think a mild correction is due
  

Major Market Indices & Option Flows

S&P 500 ETF ($SPY)

Weekly Recap & Abstract:

SPY gained 4pts last week after the first rate cut in over a year. Most of the gains were hatched in the pre-market session after the FOMC, but the market stalled after this, correcting for the next two sessions. We were of the belief a major directional move would manifest out of this FOMC. But Powell’s comments were more hawkish/negative on the economy than expected as he worried about job growth and inflation. Pair that with weak job numbers and stubborn inflation and markets seem a bit more unsure. To pair up with this notion, we’d like to note the 20yr yields actually ticked up from the FOMC as they were posting at 4.6% pre-FOMC, and are now at 4.72%. This is the bond market telling us long term investors are unsure about the US economy medium term.

Positionally, we’re above the 660 BBP/TGS combo with a lot of positive gamma between 660-670. This makes this zone sticky and important for bulls to hold. As long as we’re above 660 this week, we’re holding a bullish hue on markets. But if we lose 660 on a daily closing basis, we’re shifting to a bearish/risk off tone until 660 is recaptured. Thus keep an eye on the 660 level all week. To the upside, there is room to tag 670, but after this, upside fuel drains a bit. 

We are a bit wee worried as there are many single ticker/stocks with heavy call skews after last week. This makes me feel buying long calls in many of them is a bit rich and that a correction would help with the repricing. Examples being TSLA, ASTS, AMD, IWM, WFC, C, META are all a bit rich and thus pricing wise, we view them as unfavorable to be holding long calls until the skew comes down a bit. If many of these tickers were to fall back due to long call profit taking or weakened call buying, this could put pressure on SPY to lose 660, so keep an eye on these higher skewed tickers, especially early in the week as we’re a bit more fragile with the Sep op-ex positions done and dusted.

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

• The TGS is stationed at 660 which is critical for bulls to hold
• The TCS is at the key 670 level above and thus will be an important upside target
• The TPS has moved up to 650 after the Sep op-ex
• Our BBP is combo’d with the TGS at 660 making this a really important level
  
  

Our Trading Plan

• If you believe markets will continue higher this week, we suggest waiting for a mild dip into TGS/BBP combo targeting 670 for the week
• If you believe markets will weaken this week, we suggest establishing bearish positions on a move into 665/670 res zone targeting 660 and 650 for the weeks ahead
• Tactically we remain bearish < 660 on a daily closing basis
• Expect volatility to be stronger this week and some potential weakness early on
  
  

Nasdaq ETF ($QQQ)

What's Happening

• Tech outperformed SPY last week rallying on Fri while SPY faltered a bit
• TSLA is building upside pressure around 430 and looks like its trying to breakout
• A lot of tech stocks are a bit rich in call skews, and this could lead to some weakness
• AMD, BIDU, BABA and many tech tickers are super vulnerable for a pullback due to high call skews, so careful adding to the big tech tickers to open the week
  
  

Our Trading Plan

• If you remain bullish on tech for the week, we like waiting for dips into the 595 BBP targeting 600 and 605 for the next 1-2 weeks
• If you remain bearish on tech this week, we like getting bearish on corrective/weak pullbacks into 600 targeting 595 and 590 for the week
• We think TSLA is potentially forming a breakout so watch this carefully on the open
• ORCL seems to be stable around 300 so this becomes a good level to be long above
  
  

Earnings Highlights & Option Flow Interest

Abstract:

MU is the big tech one this week, and we have COST for retail/consumer and KBH for home buying info. 

Source: Benzinga

Current Option Market Positioning for the Week Ahead

SPY Option Positioning & Open Interest:

Total Calls: 4.6M (-1M)

Total Puts: 11.6M (-2.8M)

Translation: Bearish < 660

Largest Gamma Expiry: Oct op-ex 11%

QQQ Option Positioning & Open Interest:

Total Calls: 3M (-.6M)

Total Puts: 5.3M (-.1M)

Translation: Bearish < 595

Largest Gamma Expiry: Oct op-ex 10%



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