SPY & The Quad Witching (June 17th)

Once again, the bell tolls for Quarterly FDs next week. With the excess volatility recently in SPY, options seems to be putting more influence in Indices and ETFs. Given the previous Witching, I was absolutely inversed into oblivion. Next week, I’m going to HOPEFULLY not make the same mistake…

A brief explanation:
“Each quarter (Every 3rd Friday of March/June/September/December), there is an event where a large amount of Open Interest disappears from the Market from Indices and Futures. Typically, this can cause a large amount of volatility in the Market. The previous Witching saw us rallying all the way to 460 along with dovish news from FOMC. This could occur again, but currently I’m in a state of watching rather than entering based on opinion this time around.”

I recollect @Kevin posting in the last Witching Thread something relating to the possibility that depending on how much OI there is on Puts, there is potential that downward bets can become quickly inversed and ‘squeezed’ out of their positions as the expirations hit. That vice-versa could happen if there’s a larger OI on Calls instead.

If anyone would like to add onto the topic, please go ahead. The point of this thread is to bring awareness and see if we could make better predictions for future Quad Witchings. For now, when I do end up entering SPY positions for next week, I’ll post here.

Thanks to @bigglyoptionoligist for reminding me about it this month. Work’s been a mess.

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I forgot who said it today but I find it hard to believe this wouldn’t be a perfect time for puts.

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Basically right on this today. Tomorrow is likely to continue to slump or find a support to hang onto.

Here’s some things to keep in mind for Wednesday… FOMC comes out, if we do continue the 50 BPS hike, this can be considered bullish. Another thing is that we’re reaching the oversold level on the RSI for both the daily and weekly. Recollecting to the first major selloff, SPY rallied 20 pts in a single day as the afternoon came.

There is both a technical and possible FOMC news that can cause a catalyst for a reversal. All stacked up with a potentially large Put OI expiring Friday. This however shouldn’t be considered guaranteed. If it does happen however, I believe we should be safe to swing rather than scalp.

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There’s PPI tomorrow pre-market. This should be significant for the direction tomorrow takes, no?

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Given the CPI, it appears possibly PPI is also not going to be great. Could end up being priced in or forcing RSI to become oversold and trigger a reversal early.

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Merging SPY Week of 6/13 and FOMC - #7 by juangomez053 over here so we can consolidate discussion. As stated in the other thread, the Fed has to choose whether to be credible or whether to be proactive. A 50bps increase keeps Fed credibility, but does very little to fight the rising inflation. A 75bps increase helps fight inflation, but would blow a hole through the Fed’s credibility.

I just don’t see a way for Wednesday to go well regardless of the decision.

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Retail report for May comes out Wednesday morning pre market as well
https://www.census.gov/retail/index.html

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Posting here although it was posted in TF:

https://twitter.com/DeItaone/status/1536687511925313537

Basically, PPI met expectations, which is somewhat good news during these times. So at least this wont be helping pull the market down further.

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Bought a July 400C here. Cheap and near a previos support. Will cut for 10% L if we go lower. This might end up as a scalp position

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It’s important to understand the potential negative outcomes of the Fed meeting tomorrow. If the Fed only raises the rate by 50bps, the market may go up only to be brought back down once everyone realizes that will not be enough to fight inflation. If the Fed raises the rate by 75bps, the market may go up because they see it as the Fed working hard to fight inflation, but then may be brought back down once everyone realizes this means we can no longer rely on the Fed’s forward-looking statements as gospel. Either way, expect a lot of volatility tomorrow with an EOW trend to the downside (at least that is my prediction). I think the Fed is in a no-win situation and there will be a negative reaction regardless of the amount of the increase.

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I expect choppy channel bouncing today. Currently deciding between a slow bleed and a more aggressive selling channel imo. 3800 has been tested multiple times and rejected, it will take a lot of put closures or new positive news to rally through it.
Positions atm:
6/17 3500p esm2
6/17 4100c esm2 (futures vs of spx)
9/22 tqqq 23c (expecting relief rally this month and crash later in the year but I may change my view after opex if it continues downward)

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Bonds have tightened an additional 25 to 50 bps since the CPI report came out.

High yield spreads are widening again. Still below 500 bps, which is where I’d start getting concerned, but approaching it quickly (also the 2018 taper tantrum level).

Investment grade spreads are still healthy, but starting to approach concern area for me. In my opinion, I’d start getting concerned if they start going over 150-200 bps.

All signs in credit market are signaling “expect 75”.

Futures expect 75 this week.

75 in July

50 in September

50 in November

25/50 in December

Bringing FFR to 3.50-3.75/3.75-4.00 by year end.

As many have mentioned already, the “no way we get 75 this week” trade could be attractive. 75 would signal that the Fed is panicking and destroy the little credibility that the Fed has left. We’ve gotten a decent amount of tightening in credit markets since CPI, probably accounting for 75. If that gets undone, the rally could allow for some decent scalps.

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Id make a rebuttal that credibility is having your estimations and market estimations align. The fed did say it is not(75 bps in previous meeting) on the table but having market expectations align with fed actions allows for confidence since the tools for market info are accurate and less uncertainty.

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So far on today… There is a potential uptrend forming on the 1Min. Looking at the 5min, there’s still long wicks on both sides which could indicate we’re going to move between resistances and supports rather than having a rally or sell off.

I decided to add onto my position, but still keeping a tight stop loss. Still safer to wait for tomorrow as this morning has been incredibly choppy.

https://twitter.com/biancoresearch/status/1536699253430558725?s=21&t=asjR2RzFdg2DMCiqvCRvbA

Posted in TF, going to post it here, too. WSJ article drove futures up more than the CPI print itself did.

There’s very much a credibility issue here.

I just want to reiterate that tomorrow is very important for the direction of SPY for the rest of the week. Here’s the technicals that make me believe we have potential to go up…

  • You have RSI on daily and weekly near the bottom. The previous times we’ve seen this happen, we rallied the next day. This along with the recent gap downs could lead to a larger rally back to 400.
  • Depending on the OI volume of Quarterly puts across the indices and futures, there is a possibility that this can ‘squeeze’ out bear positions as people sell them before expirations.

The biggest factor though that we’re all waiting on is what the BPS hike will actually be. Although the technicals hint at a reversal, news is likely going to pick the direction we head. That said, it should still be safe to play said direction for longer than a day.

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Im unsure what will happen tomorrow, but its hard to ignore the bond markets batting average. My personal opinion is that the fed is in a lose/lose situation and will lose credibility either way. A surprise 75bps loses credibility but at least does more to fix the problem.

While a 50bps hike with a J Pow press conference telling the American people the same story “The economy is strong”, “higher wages” “the labor market suggests” “housing inventory” “we are leaving nothing off the table going forward” “we are going to continue to analyze”

Credibility is going to be lost. You can only be so hawkish after raising 50bps, too much and people wonder why you didnt do more.

Also worth mentioning the MOVE indicator or “vix” for credit markets has been hot lately, highest level since 09 passing the covid crash high of 2020 just today.

I have a few smaller positions on spy just in case something breaks, but will be mainly cash and scalping until press conference, Retail numbers in the morning however could change that.

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Looking at CPI, most of what drove inflation was supply side. There is a case to be made that 50 is reasonable due to the Fed being able to do fuck-all when it comes to supply-side constraints and demand being destroyed already with inflation as is plus already relatively tightening financial conditions due to high rates.

I’m not going to be on much during FOMC tomorrow due to some personal stuff going on (everything is fine, just have an appointment I can’t move). These are the things I would be looking for when FOMC comes out tomorrow:

  1. 50 or 75 hike (obviously)

  2. Will we get a terminal rate forecast?

Futures are forecasting 4.00% by March 2023 to be terminal rate.

  1. Will Powell pull a Volcker and stop the forecasts all together (most likely not, they’ll prob start trying to be even more open than they are already about everything and being more hawkish than before)?

  2. Will there be a change in how Balance Sheet roll-off is done? We already got research from the Fed saying it doesn’t really make a difference if they ease into full cap monthly roll-offs or if the incrementally raise the caps:

  1. Will we get some sort of statement on the Fed Put?

  2. Will we get some sort of statement on credit markets? (No-bids on MBS, high yield spreads widening, etc.)

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JPM’s view on respective 50, 75 and 100bps scenarios… which aren’t exactly that intuitive lol

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This pretty much answers my questions from last night about why 50 would be more bearish than 75. Thank you!

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