SPX Gamma Wrap
The SPX rallied 1.2 percent today based on reports that Russia is reducing military operations around Kiev, even though it is highly uncertain if that really is a sign of de-escalation, or rather a harbinger of restructuring for future escalation.
Speaking of harbingers.. The spread between 10-year and 2-year Treasury Notes briefly turned negative today, causing lots of uproar in the financial community, as this could be a sign for an impending recession. Earlier today former NY Fed president Dudley opined in a Bloomberg piece, that a hard landing is now “virtually inevitable”.
On average a recession hits 23 months after the first rate hike (if the curve is inverted at the end of the cycle), however - never in history has the Fed been so outrageously behind the curve as now, and one can argue that the real inflationary pain has not even started yet, as energy prices will only go up from here, if Europe does not accept russian demands to pay oil and gas in rubles, and sanctions against Russia are going absolutely nowhere in the foreseeable future - with or without a cease fire.
Dealer gamma meanwhile increased by 237MM to 578MM, which points to a constructive market, no matter if the fundamentals seem to be there or not.
At 4600 an absolutely gigantic gamma position, worth over 100MM gamma notional is located, which will however get reduced significantly over the next two days by 37MM. Also, the gamma strike at 4650 (73MM) is about to shrink by 24MM.
There is a good chance that the market will just remain in this range until Thursday, when the end-of-month options expire, and then adjust to a new range next week.
Speaking of harbingers.. The spread between 10-year and 2-year Treasury Notes briefly turned negative today, causing lots of uproar in the financial community, as this could be a sign for an impending recession. Earlier today former NY Fed president Dudley opined in a Bloomberg piece, that a hard landing is now “virtually inevitable”.
On average a recession hits 23 months after the first rate hike (if the curve is inverted at the end of the cycle), however - never in history has the Fed been so outrageously behind the curve as now, and one can argue that the real inflationary pain has not even started yet, as energy prices will only go up from here, if Europe does not accept russian demands to pay oil and gas in rubles, and sanctions against Russia are going absolutely nowhere in the foreseeable future - with or without a cease fire.
Dealer gamma meanwhile increased by 237MM to 578MM, which points to a constructive market, no matter if the fundamentals seem to be there or not.
At 4600 an absolutely gigantic gamma position, worth over 100MM gamma notional is located, which will however get reduced significantly over the next two days by 37MM. Also, the gamma strike at 4650 (73MM) is about to shrink by 24MM.
There is a good chance that the market will just remain in this range until Thursday, when the end-of-month options expire, and then adjust to a new range next week.
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