Over the past decade of Fed fueled monetary extravaganza a ramp and camp formation has become the norm rather than the rare exception. The Monday short squeeze that officially cemented a new S&P milestone above the $4k mark has pushed us to new stratospheric valuations, and it stands in stark contrast to the worldwide economic situation in which we currently find ourselves. Not to mention the one we are heading straight into. Let me assure you that a global silicon shortage affecting chip production across a wide swath of industries is merely the tip of the iceberg. There’s a lot more fun to come.
From a trading perspective one single session (i.e. Monday) has now propelled us to what institutional option traders regard as the line in the sand when it comes to managing their gamma exposure. And it now leaves us in an interesting situation.
A little pop higher and stat-arbs are going to start selling while institutional buyers will have to start buying futures in order to mitigate increasing pressure against the boatload of far OTM calls they enjoy selling to hapless retail shmucks. Yes that’s us – know your place in the pecking order and you may just survive long enough to tell the tale.
The NDX is in a similar spot which strongly suggest that tech is once again leading the chart. Also note how the IV-Z-score has literally cratered over the past week. From an option trading perspective this is very exciting! And yes I’ll tell you why – patience grasshopper.
The Russell is the odd man out as it has barely moved. So there is a bit of trouble in paradise and divergences like these near all time highs always have my undivided attention.
Part of that is related to finance of course which has been lagging behind over the past week. Yup, you’re not going anywhere, pal!
Not until the following chart is starting to make a move. And quite frankly it’s the only one that truly matters right now:
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