Quantuition with Doc McGraw

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[00:00:00]And >> I think you have to wait for that.

[00:00:04]>> Okay.

[00:00:05]Good morning everybody. Take two.

[00:00:08]Apparently I I went too soon.

[00:00:11]I'm Doc McGrath and this is Doc McGro's options gel where we're going to talk about all things SPX. I see a green candle. I guess NFP the AOS like it also. And let's not let's remember that although there wasn't a lot of volatility priced in for this NFP and we'll talk about that in a minute. It kind of before the open the range was about 30 35 points and yesterday at the close the expected move up or down was 45 pointsish.

[00:00:48]Um even that little bit of volatility is going to come out of the chain. there's going to be a rehedging and readjustment based on that which has very little to do with the actual NFP print. Of course, if the NFP print is outside of the norm one way or another, you know, there's going to get a reaction, but most of this reaction is going to be the volatility readjustment and the rehedging and a few early bird alos. And then we're going to see what the market i.e. the algos really think about it as the day progresses as the morning progresses. And they there is no they are not bringing it up to bring it down or bringing it down to bring it up. It's mechanical. There's no plot. There's no man in the machine.

[00:01:42]There's no ghost in the machine. It just is multiply determined etc. like the Buddhist idea of conditioned arising.

[00:01:51]But anyway, let's [laughter] I digress.

[00:01:55]I digress, which is unusual for me. Um anyway, I was just reading about the the inputs of consciousness from a neuroscientific point of view and from a Buddhist point of view and from a vadic point of view and where they mesh.

[00:02:13]Also phenomenological experience from the philosophers of like the early 20th century and throw in uh William James from 1895. I think he was the first one to use the term stream of consciousness.

[00:02:29]That consciousness is a stream. It's not discreet. So if you're interested in that, I have some good books to recommend. If you're not, we'll get on with our show. Anyway, um so yesterday advanced, let's talk about yesterday real quick because yesterday was an interesting day.

[00:02:48]So yesterday we opened uh I forget where we opened kind of strong. We topped out at 85 >> real quick. Interesting day, but we called it. I did yesterday. So, >> pay attention.

[00:03:04]>> Right. That's right. Of course, we called it.

[00:03:06]>> Yeah.

[00:03:06]>> And then intraday, we called it again.

[00:03:08]I'm going to get to that, so I might as well toot my own horn if nobody else is.

[00:03:13]Um, I'm doing it not just to toot my own horn. I'm doing it because I really think there's value here. I'm not just saying it. It it there is. And I actually put it out on Twitter [clears throat] in case in case anybody is questioning it. And I'll show it in a minute. Okay. And so we kind of chopped around, fought around this 70 area, you know, 50. Then I forgot what the news was. It doesn't really matter. We kind of started losing it and, you know, losing that 7075 pivot where we kind of are again.

[00:03:51]and [clears throat] had the you know the action Jackson zone near the 4050 range the round number that eventually we broke the round number what happened when we broke the round number what was going on right before that you may may ask around 12:22 when I posted it funny you should ask what was going on right around then and I have it in here somewhere now we're going to my Discord where I put it in the Discord of course before I tweeted it because obviously uh I got to find it.

[00:04:27]Discuss amongst yourselves.

[00:04:31]Here we go.

[00:04:33]And [groaning] here we go. This is a very slick presentation. I had my slide deck all prepared.

[00:04:41]Here we go.

[00:04:44]That's 7320 that came in. I noticed it around 12:15.

[00:04:52]This wasn't there at the open. See that little that that was new. Somebody bought 6,000 roughly 722 puts when we were like up at 50 5560 somewhere up in there.

[00:05:11]And where did we bottom out yesterday?

[00:05:17]7321, a point away.

[00:05:21]And we, you know, we got the whole move down and we had a clean retrace back up. And here's where we were kind of like gaming out where we would pin at the end of the day.

[00:05:37]So anyway, that was that's the main takeaway from yesterday.

[00:05:48]And so here we are. New alltime high. G.

[00:05:53]Let's get to the notes.

[00:05:58]NFP marketers pricing in New York. L.

[00:06:00]Clever headline. I like it. My headline, not stats. I like to write this [ __ ] myself. It's fun. So we closed down about 4% and now we're back up. We we took it all back. Here I talk about the 7320.

[00:06:18]And here I just give a little bit of the dynamic. 7350 failed. The reflexive hedging did what we expected to do. We dragged price right down toward it. Kind of randomly happening, right? When you watch the flow.

[00:06:33]Okay. So here I just kind of describe that um overnight. So overnight we kind of dropped on some we were blowing [ __ ] up in we not me personally or you personally the US whoever was air force was blowing [ __ ] up in Tyran and the market got nervous but as you notice the market gets ner less and less nervous for a shorter and shorter period of time just like it did with the Ukraine war just like it did with COVID. After a while, it's priced in. I see people yelling, "But oil is 90 or this or that."

[00:07:11]We're not moving dollar for dollar with oil anymore. Oil goes up, we're not moving the tape. Maybe a little bit. All that shit's adjusted. The cross asset volatility, whatever, that's all baked in. Sorry if you're still watching, reading yesterday's newspaper.

[00:07:30]Of course, I'm not saying if oil spikes crazy or whatever.

[00:07:34]But its relative impact is not what it was. It just isn't.

[00:07:39]Okay.

[00:07:41]So, so I think this here a little point that I'm kind of in I've been watching this lately. I've been watching it on and off for a long time. I've been watching it more systematically lately.

[00:07:52]And I'm not totally systematic. I'm quantuition analytics plus intuition. So now I'm watching it actually systematically. Uh at Thursday's close, the EM was about 43 points.

[00:08:05]Uh so roughly 7380 was the top of the expected move, 80 85, whatever. And we're there now. So a lot of the move up priced in at the close yesterday is gone. Now, the expected move at the open put us at 60 or or when I checked it before put us at around um 7410 15ish somewhere, you know, near there.

[00:08:37]So, I like to watch how what of the expected move was used up and how the market deals with that.

[00:08:46]So, translates a big chunk of the expected move was used up overnight.

[00:08:50]does not automatically bears. It just means the easy part the easy money was made.

[00:08:56]Those people who bought yesterday, you know, at that drop or even as we recovered. Okay. Um I also see people complaining about we're going up, the markets are rational. I there was somebody that had a a rant, so to speak. Not really a rant, but like oil is doing this inflation.

[00:09:17]Why are we going up? The market sucks.

[00:09:19]It's crazy. Whatever.

[00:09:22]And here's a brief summary of some longer stuff that Citadel was Citadel Capital who handles 35% of all retail options volume. Um also Neora a lot of people had notes out and basically same story. Um the bigger backdrop is still supportive points to corporates being beginning to do the buybacks. Buyback is coming in.

[00:09:53]75% of Q1 earning season is behind us.

[00:09:58]Beats remain strong. Revenue beats remain solid. Nearly half the companies traded higher after the print. Retailers re-engaged.

[00:10:06]Am I saying we're going to the moon? No.

[00:10:09]Structure first, flows force. I'm saying let's not get tied up in the bare narrative.

[00:10:17]I can make up any story I want.

[00:10:19]Headlines make price or price makes headlines rather. So earnings beats whatever. That's why we're going up. If we're going down, oh, it's because of oil prices. It's all [ __ ] It's all [ __ ] Trust me.

[00:10:33]I've been doing this for in a focused way for about 40 years, in a super focused way since 1994 where my son was born. I said, "Okay, time to get serious with this shit." And um yeah, so it's all [ __ ] That's my takeaway after after 45 years reading Value Line and watching this stuff and investing and 30 something years doing this in a concentrated way. It's all [ __ ] Okay. So, with that said, um with that said, let's get to uh some levels and lines and Okay, so [clears throat] we got some boxes here. I like to look at the boxes. 73 7270 and 7280 to the right is market maker long.

[00:11:41]What does that mean? That means customer sold put credit spreads mean reversion.

[00:11:47]We if we head down there, they buy on the way down. This is yesterday's close, by the way.

[00:11:55]And so that's like our absolute bottom.

[00:11:58]We ain't going there in between whatever it is 7350 round number. Duh. Once again, kind of the bottom of the expected move. When I looked before all the way down here, there's really no strong reference point to hang your hat on. It's just kind of there. There's some positive gamma between 40 and 7,300.

[00:12:25]It's not small. It's 2,000 contracts, but it we have a lot more over here. We have 5,000 at 7350 round number. That's your first main reference point.

[00:12:37]So, they made it nice and easy for us.

[00:12:39]Round numbers.

[00:12:42]Um, so in here is anything could happen zone between 50 and 90 where we are now. Two-way ladder bounces off of here, gets sucked back up here. Two-way ladder really between 65 and if we overshoot 7,400. Go figure again, right? Customers are long only 1,400 calls there right now. They they they were long a few thousand the other day. I guess they monetized some.

[00:13:16]And then above 7,400, you know, we have some sold options. Not a super big amount at 74 and a quarter.

[00:13:26]And up at 7450, we actually have some bought options.

[00:13:31]Clearly, I think the other side of these trades, they bought these, they sold these call credit spreads. If you're watching this, you know what that means, I would hope. And uh 7475.

[00:13:43]Let's get to open up the lid a little bit so you can see what's going on up here. And so over the 7440 50 70 whatever it is. Um we ain't going there 99% or whatever it is. But I'm just showing this just so you have a frame of reference. Let me get rid of that because that's basically noise. So let's bring it back to what matters.

[00:14:09]Let's just say 74.

[00:14:13]what matters, what we want to see.

[00:14:16]Let's go 7445 guess to bring it back to what matters.

[00:14:23]Okay.

[00:14:25]And let's take a quick look at the heat map which takes into account the entire complex. Not good. Zero DTE.

[00:14:33]That's not today. That looks like it has to refresh.

[00:14:37]And there it is.

[00:14:40]And so what do we see? The red is where Mark may belong.

[00:14:45]Think those magnets that attraction to it. But with positive gamma, we kind of mean revert to it, get pushed away and get pulled back to it.

[00:14:58]With negative gamma, we kind of get sucked toward it and then move away from it. So, it's kind of the opposite dynamics, but we tend to get reactions either way. So, let's kind of zoom in here at more likely areas. So, 73 6070 and 7,400 are the two main attraction zones.

[00:15:26]Path of least resistance kind of thing with a fork in the road. Like Yogi Vera said, when you come to a fork of the road, take it. So fork in the road up towards 7,400 down towards 7360. Now that assumes that we hold this 7350 zone during most of the day. You see time on the x- axis down here. This is kind of pale colored.

[00:15:52]So there's not a lot of hedging influence. It starts to come in even in the morning because remember gamma is dependent on how close we are to the strike price and time and so these levels get stronger as the day as time markers on. Um and so this whole 7340 zone 50 kind of gains more significance ear later in the day. And of course, if we're below it, then it becomes kind of a ceiling at the bottom.

[00:16:27]Should we kind of crap the bed?

[00:16:30]7320, yesterday's close. Once again, go figure.

[00:16:36]And if 7,300 should break, you know, that's 728070. And these are just the other side of the put credit spreads that people sold.

[00:16:50]And that kind of wraps it up. Let's take a look at my volatility dashboard that the trade subscri the paid subscribers get.

[00:17:00]Um was really nothing that interesting.

[00:17:04]Uh the main thing that I thought was interesting was the the VIX VIX three months ratio.

[00:17:14]Oh, no. I have that somewhere else. Um, VIX was down, S&P was down 38 and and the VIX was percent and this was 1.7%. That's a 4.7 ratio. That's right about historically, if you remember yesterday, the day before Wednesday wasn't like that. So now we're kind of back. Yesterday the VIX price action normalized the abnormal that we saw on Wednesday.

[00:17:47]That's what I'm was trying to say there.

[00:17:49]Maybe not quite that elegantly. So here I say yesterday was an oddball. Yeah, I was I wrote this on Thursday night after the close. So yesterday meant Wednesday.

[00:18:00]Maybe when I rewrite it, I'll put the day.

[00:18:05]What I say?

[00:18:07]Are there spots where plenty can happen today? Is it It's you can't predict 100% but sure there's certainly more likely spots and we'll look at that.

[00:18:17]We'll look at that.

[00:18:20]Um there was another I think it was in the term structure that I got another nuance. Where is it?

[00:18:29]Okay, here we are.

[00:18:32]the VIX threemonth VIX ratio steep into 1.9.

[00:18:40]What that's basically saying, I have a better one somewhere else. I guess didn't write it up. There's another way to look at that ratio. Um I think I have it on a chart here somewhere.

[00:18:51]I'm sorry for dragging you into the weeds. Where is it?

[00:18:57]Here it is.

[00:19:00]You see this ratio, the VIX 3 month divided by VIX 1.9 that's at a high.

[00:19:09]Usually when it's that high, we expect short-term volatility to go up or longerterm volatility three month to come down. So, in other words, the difference between the VIX 30-day and the VIX 90day is kind of higher than expected.

[00:19:30]There's about 20% variance premium in there, which is a little bit more than normal. [clears throat] That's all I'm saying. Just something to keep an eye on. And maybe V trader could talk about that because that's like that's kind of his neighborhood.

[00:19:47]That's kind of his neighborhood. And why do I watch all this [ __ ] about because I want to know how it's going to affect SPX and the market in general?

[00:19:58]That's it. I just want to know how it's going to affect the market in general.

[00:20:02]And so I think that's pretty much uh let me check my notes. See if I left anything out.

[00:20:13]Okay, 1.5x the expected move. by the way for you premium sellers is 73257425.

[00:20:22]I use that as a beginning reference. I use the expected move as another reference. Then I look for where the big gamma levels are and that's where I start to construct my trades.

[00:20:34]Uh the VIX VIX ratio was kind of bland.

[00:20:37]Yesterday's volatility dashboard was kind of bland. And I threw this in for the free um the annotated version is um in the Discord and people who subscribe get this every day in the email and in the Discord the the the complimentary email gives you all this stuff and once in a while I throw it in but the complimentary email ends here.

[00:21:05]So, there's a lot of crap in there, I think, for free, if I say so myself. And that's basically it. And here I go a little bit more into the volatility stuff. And here's the link to the volatility dashboard. I don't know if you can see it. There's a link to the volatility dashboard. Um, and here I talk about the buyback window. I guess told you about it.

[00:21:28]Anyway, and that's it. Let's get uh let's get some guys on the on the screen.

[00:21:42]>> Let's let V go first if you're ready.

[00:21:45]>> Okay. Go ahead, V.

[00:21:53]Okay. I saw one of uh my subscribers.

[00:21:56]So, I'm real proud of Selena. I I got to say it. I hope I don't embarrass you.

[00:22:00]She's been working diligently.

[00:22:04]>> I need a couple minutes. I just got a call I need to take.

[00:22:08]>> Okay. She's been working diligently at I I challenged everybody to write a daily plan. A few people do. Most people don't. That's okay. I started writing my daily plan because somebody challenged me and it's helped me amazingly. She's digging into the beta course. She's putting in the effort. And you know what? It's paying the fruits. You know, uh, karma doesn't mean some magical mystical accounting system. It means what you reap is what you sow. It's an agrarian metaphor from an agrarian society years and years ago. It's, you know, that that's really all it means.

[00:22:45]The law of cause and effect. There's also mental seeds of karma.

[00:22:49]The mental seeds I plant in myself. If I'm thinking these people are [ __ ] angry, whatever, I I should tell them off. Guess what? I'm going to tell them off eventually and that's going to have seeds of interpersonal conflict.

[00:23:03]So there's mental seeds that we plant as well. So think positive. Don't worry, be happy. Um but anyway, I digress again while everybody's getting ready, but we can always find more things to talk about. I don't run out of things to talk about. Oh, somebody asked about the pin. So, let's uh let me uh let's let's kind of talk about some possible trade constructions while we're uh while we're looking here.

[00:23:37]Give me one second. I'm going to pull up an option chain and please hit like, subscribe, especially on Twitter, man. The YouTube folks are are are participating. The Twitter people are just kind of like sitting around. I don't know what they're doing.

[00:23:58]>> I might have to get on Twitter that Selena's been doing great on what what I've been showing her on the on the price action side. So, I think she's going to be a killer here soon. Might have her might have to have her on the stream soon.

[00:24:13]>> Oh, yeah. Talk about the price action thing.

[00:24:17]>> Yeah, it was going really well. Um, we had a really good session yesterday. I think everyone was pretty happy where with uh all the practice and and review that we did. Uh if you guys are interested, you can still sign up. Um the link is in the YouTube description.

[00:24:32]If you are on the fence, give me a call.

[00:24:35]Um you can reach out to me on Discord or Twitter and we'll set up a free call just to see if it's uh if it's the right fit.

[00:24:42]>> Okay, great.

[00:24:44]All right. So, let's uh take a quick look at um let's let's f first before we construct a trade, let's take a look. And somebody asked about pinning.

[00:25:01]Okay, so here's how I think about pinning. What are the likely paths?

[00:25:07]Okay, so there's one path. We know if 50 breaks, we should kind of head toward that direction, but it's a sticky kind of graduated move. We'll get back to it. If we break above 90, we get sucked. We could kind of get pulled toward toward um 7,400.

[00:25:32]So, I want to look at the path with a fly. Where do we likely pin?

[00:25:40]75, 7,400, and 50 in one of those three round number zones. Round numbers. Now we kind of have the on weakness.

[00:25:54]Maybe down here.

[00:25:57]I don't see much below 50. I mean, of course, we could, you know, 35. Remember if 35 so a lot of 35 breaks it opens the door back to yesterday's close.

[00:26:12]Now I'm no geopolitical military strategist that caveat [laughter] >> right. However I was a viologist during co I was a constitutional law scholar during the impeachment hearings. So now I'm a a geopolitical military strategist and it seems to me that this blockade fit is working. Um I saw a tweet yesterday that um what did they say that the sticking point is Iran wants reparations now. Now you know we know that it's all [ __ ] but Iran wants reparations. If reparations are reframed as we're going to have Hallebertton and Exon Mobile and Floor Construction, whatever, go in and rebuild the bridges and clean [ __ ] up there.

[00:27:12]And we're going to invest X billions of dollars in there. So now we have money next to China money in Iran. They can call it reparations. We can call it investments. the US government could take a piece of the action just like we did with Intel. Everybody can take a victory lap just kind of like Venezuela is now thriving and so is America. Love Trump, hate Trump, doesn't matter.

[00:27:36]That's just what's going on. Um and and that's kind now we may have to do a little bit of bombing [ __ ] over the weekend. If I were Trump, the market's at all-time highs. We could afford a little bombing and a little nervousness over the weekend, you know, and a 1% pullback or so before he has a Monday or Tuesday taco. I'm not predicting that.

[00:28:05]That's my like outlier, but not crazy outlier case. And that's kind of how I'm looking at that.

[00:28:13]Um, and so that's kind of that. And so yeah, [sighs] I think we probably tag 7,400 today and then probably mean revert back into this zone.

[00:28:39]These weekly straddles have a way of not that we don't overshoot them by a lot.

[00:28:45]sometime.

[00:28:48]Let me see this. Hold on. Oh, I remember Shurac told Bush they was happy to be involved in the Iraq war only and exclusively when it came to the reconstruction. Exactly. Right. Exactly.

[00:28:59]There's a whole reconstruction thing going in. You know, come on. We're not children here.

[00:29:05]Not that that was a motivation. It's just a side effect. It's just kind of the way it is. The world is a world Um, where was I going with this? Okay. Uh, all right. So, yeah, I was looking at flies.

[00:29:26]Let's see. What was What do I got here?

[00:29:28]I don't even know what I got here.

[00:29:30]Oh. Oh, this was I I had some kind of a little cheapy weekly iron condor for for the monthly for May 15th. Looks like I closed out the call spreads at a profit. Um, left with just this little this little thing here. I don't even remember what I was thinking here. I probably put it on like quite a while, you know, a week or so ago. But anyway, let's look at uh interesting story about I'm going to tell a quick story.

[00:30:04]Interesting story about CSX. This is not a name I usually trade. I happened to notice last year sometime crazy volume in open interest at CSX. I forget what it was like the 35 strike when we were like 32 or something like that or 29.

[00:30:26]Huge volume came in and it kept coming in at 35.

[00:30:32]I said, you know what? What the hell?

[00:30:34]Let me invest 500 bucks to see. I've actually rolled this once. It was a January and then they kept rolling it and so here we are now. Does that always work out? No. I just sort of and then I also and then I spread whatever. I guess I'm going to take it off when it gets to the top of the spread here. Time to take it off and take the 500 bucks and go home.

[00:31:03]I might leave it on a little while longer. This is an IBM put spread. I did when IBM crapped on earnings. I'd be happy to take assignment at 195.

[00:31:13]Anyway, but that's a whole another story.

[00:31:16]Microsoft still struggling, but I would take assignment at 450. I don't care. I would take assignment of 100 shares of Microsoft at 450.

[00:31:25]Um, instead of selling a 450 call and buying the stock, I just in my other account, I guess sold the naked put, got five grand for it, which ends up being a 4,ou 400 assigned cost basis, which I which is already above it. It wouldn't get assigned. So, instead of this cover call, I just get the money in my account. I don't lay out any capital. Of course, I'm willing to have the capital behind it anyway.

[00:31:55]So, I also do other [ __ ] I didn't, you know, I I wasn't trading S&P options 20 years ago, 25 years ago. A little bit OEX. OEEX was a thing in the 90s.

[00:32:09]I was paying spy war if I was trading index options. Anyway, let's get to um >> let's get to the topic at hand. You ready? Okay, good.

[00:32:18]>> But uh but if you want to go through that, I can come up after that.

[00:32:22]>> Okay. I I'll do a quick version and then we'll come back to to it later.

[00:32:27]>> We'll come back to it in a minute. So, what I want to see myself what kind of flies I would get.

[00:32:32]>> Um, okay. So, I'd expect to stall at 50. So, let's try a more aggressive fly. 65 cents. That's not bad. 6050 40 for 65 cents.

[00:32:52]>> [snorts] >> 60 cents. I'm putting that in right now.

[00:32:55]Whoops. Putting it into the other wrong account.

[00:32:59]That's okay. I'll have the other account, too. I think that's good for 60 cents. [snorts] Might want to make it wider and give it more room for the pullback.

[00:33:09]And this is something I may or may not hold for the pin. If if it moves and it's if it's profitful, if I pay 65 cents and it goes up to 90 cents, 95 cents, paper hands, I'm taking the money.

[00:33:27]And on the call side, let's see, let's move the strikes up. We want to be somewhere near 7,400.

[00:33:37]So, let's see what uh Let's see what something like that looks like. 95 cents.

[00:33:49][groaning] Okay. 60. Okay. I'd like to pay less for that.

[00:33:54]What do you think, Val for a fly?

[00:33:58]I I don't want to be long the 7,400. I want to get the move toward it and then get ready to bail as it goes toward it and through it even before it gets there.

[00:34:12]>> But don't you think the market like um Oh, okay. We retrace back 73 7370. But >> yeah, >> I'm thinking if we go 400, don't we go already through it?

[00:34:29]>> We probably do. Yeah. Yeah, we do. We probably overshoot and come back.

[00:34:33]>> Yeah, but if we go, it depends when you hit it, right? I mean, if the first move will be 7,400, then you'll you you won't make money on that, uh, it will stay at the same price, give or take, >> right?

[00:34:47]>> And then it will just go through. But it depends. So, if you come at the end of the day or afternoon, then yeah, it will work. But if we if the first move goes up, even if it stalls at 74 and retraces back 30 points as the opening price, like the first 30 60 minutes, that will not change in uh in value, right?

[00:35:11]>> I think it can go from 85 cents, say, to a$110. It's not double.

[00:35:16]>> I mean, but I doubt you'll get it. Can you get it for 85 cents?

[00:35:20]>> Well, that's what that's the price it shows right now.

[00:35:24]Oh, okay.

[00:35:25]>> Yeah. Okay. I wasn't I wasn't seeing the the screen.

[00:35:28]>> Yeah. Yeah. Yeah. For 85 cents, you know, for two bucks, I would want something different. I wouldn't construct it this way.

[00:35:34]>> Oh, yeah. Yeah. 85 cents worth a trade.

[00:35:38]Definitely.

[00:35:38]>> Yeah. Yeah. That that I'm a cheapkate.

[00:35:41][laughter] I'm a cheapkate. Okay. Got your stuff ready?

[00:35:46]>> Yep.

[00:35:47]>> Okay. Let me get my stuff off. Go ahead.

[00:35:51]>> You want to go first? Uh who whoever?

[00:35:54]>> Yeah, I'll be quick. Okay, go ahead.

[00:35:56]>> No problem.

[00:35:58]>> Okay, guys. So, uh let me make this bigger. Um so, range is from uh 7,400 down to 7367.

[00:36:11]Pivot at 7383. Um if you saw my post earlier, I posted this quite a bit ago.

[00:36:16]You could have had a good short up here at our ceiling. Um, if you're in the short, I would take it to pivot and then kind of wait till open. See how that reacts.

[00:36:26]>> How many points?

[00:36:27]>> Because we're selling off currently. I'd like to see if we hold pivot um for the first five minutes or so. If so, I will be buying uh a long entry around here.

[00:36:38]If we start to hold below, I'll I'll be a little bit more patient for us to drop to our floor.

[00:36:44]And >> how many point difference is that? So people like if they can't see the numbers >> uh from where we are here back down to our floor that's 25 points to our pivot that's seven.

[00:36:56]>> Okay.

[00:37:00]Um so yeah uh that's kind of the trade I'm looking for. I am bullish like you guys. Um however I think we we really kind of switch gears if we break below the floor. I don't think we're gonna have um a a nasty move down like we did yesterday. I think dust is going to settle a little bit. I've got a lot of nets for us to be caught by. Um so I think potentially a grindier price action day to the downside if it does occur. I I personally think down and then catch and then potentially just a stall before instead of a continuation.

[00:37:40]And let's remember that options expiration is next week.

[00:37:45]And as we approach an opex, dealers are supplied with long gamma.

[00:37:53]So we just tend to be clenched a little more. We tend to just not have larger moves. So the gamma backdrop supports the [snorts] price action analysis that Chewy is looking at.

[00:38:09]You sound like uh Jim Carson.

[00:38:12][laughter] >> I taught him everything he knows.

[00:38:17]But actually, true story, Jem sounds really good on the videos and he knows a lot. So, I put I got a dealer from him. I put a quarter million in one of his hedge funds. He wanted more and I gave him a lower percent. And long story short, he gave me 3% return in a year.

[00:38:37]a little bit more before I yanked the money. But the valuable part was I got a monthly Zoom call with him. It was supposed to be a 30 minute Zoom call, but you know me, it ended up being an hour and a half sometime because I wouldn't let him go and he was too polite. And um I actually pulled the money when he didn't have time for the Zoom calls anymore.

[00:39:00]That's when I pulled the money. But it was a great education.

[00:39:03]Sounds like you got your money's worth at being over 30 minutes.

[00:39:06]>> Yeah. Yeah. Yeah. Exactly. You know, for the 3% okay, so was a bond, whatever. Uh for 3% return a year, but the education I got picking his brain and challenging him, you know, whatever. He didn't mind getting into scrum. He didn't mind getting into scrum with me and explaining stuff. And once in a while, he goes, "Well, I can't tell you what to do exactly, but a calendar spread here would do this." you know, it it was actually kind of fun. It was worth it.

[00:39:34]Anyway, um so yeah, I might sound like him a little bit and sound like Spot Gam a little bit and sound like V Signals a little bit and sound like Options Death a little bit because and sound like Gamma Edge a little bit, Paul Duncan because those have been mentors of people I've traded with along the years.

[00:39:53]Um and I still use a lot of their stuff.

[00:39:56]Okay, V trader, you're up.

[00:40:00]Oh, you're you're still muted.

[00:40:15]>> Oh, okay. Yeah, you see the screen.

[00:40:17]Okay.

[00:40:17]>> Yep.

[00:40:18]>> Good stuff. Okay. So first thing I uh do is uh identify a level which I deem a separator between uh between positive sentiment and negative sentiment. Obviously we are an environment which is 100% positive sentiment but but from a micro structure uh at least uh giving some basic respect to to those little puts that are out there. Um so the level is uh is around the 7350 7360.

[00:41:02]Uh we are above it. So if we were to retrace to that level, first thing it would do is uh act as support unless we go right through it which in that case becomes resistance.

[00:41:16]Um now notably if you just look at open interest overwhelmingly call dominated uh all over. So, um, yeah, this market is, uh, I mean, they probably learned the trick when you have two f two hedge fund managers running the global economy, one being the send, the other one being wash. Uh, [clears throat] so I guess, yeah, I guess it's like I mean, they'll find ways to print money no matter what. Like that credit line they >> go bless him >> for the Emirates. Uh, either way, doesn't really matter. The thing is that as of now, it seems that nobody wants to sell this market. Interestingly to note is um I don't know who who even follows that but it is important >> if you take S&P and you take the move index which is the ICE um uh equivalent of the VIX but for the bond market you invert you invert the the move index you'll see that it was it basically correlates uh one to one right I mean when the when the move index goes down just like the VIX the spx goes up and stuff like that. Not that one uh necessarily impacts the other, but that's how the structure is. And lately they diverged, which is kind of strange.

[00:42:40]I haven't seen it, I don't know, for years and years. So that thing um there's like a discrepancy between the volatility basically in the equities and the volatility in the bonds which generally uh work uh in another way which does make sense and right now it doesn't. I think it it it shows that in a way if the market is right and the AI is taking over the world and everybody gets fired but still you know we'll have enough money to live. So uh inflation will kick in and and that theme is is basically starting to set up in the actual market rather than in the in the general um media and stuff like that.

[00:43:31]like it's it's talked about but very very subtle but in the market it's pretty pretty loud. Uh so anyone that is interested in that can go and check it.

[00:43:42]Uh now the other thing is um obviously market uh very strong. So, uh, upside targets, uh, have a greater pool and it seemed that the world figured out a way of mechanically pushing the market just by buying overwhelmingly positions of how the money calls. Uh, which the market makers need to decide if they want to front run a bit.

[00:44:11]uh because of the risk that once you hit those huge strikes they basically will have less liquidity to go about. So there is that dynamic. Another thing interesting to note is that out of the handles I follow on X and other platforms uh more and more handles which I respect uh are short the market because anyone in the market for more than 15 years uh can only short this market like any signal that you can imagine other than intraday high frequency stuff that is pretty secretive but anything out there basically is uh screaming overbought and nothing happens. The market you know doesn't go down not even a bit. So all these short just get stuck in there and need to decide. But it's pretty interesting the fact that out of those handles like 25 handles I follow of people serious people you know they're out there for a long time and they're really struggling with this move that doesn't doesn't generate any retrace. So we'll see how that works. But for today, so we have the transition around 7350 7360 and um the micro structure of how I uh see the layout which probably overlaps doc in some ways but maybe not in all.

[00:45:35]Uh the 7390 would be the first hurdle to the upside. You can see that um basically what you're seeing is uh is a is an index I uh I designed and it shows colorcoded it shows where the market pools negative or pulls positive like 7440 really stands out here. Orange means that it's more of a mean reverting uh strike.

[00:46:05]So when you go up into orange you basically get the effect of a mean revert back down. when you go down into canon, you get uh mean revert uh back up and uh red and green are the main pools.

[00:46:18]Now, the main pool on the red side on the on the downside is pretty far. 7,300 doesn't really seem logical. We have a median term uh pool towards the 7350, right? So, that would be the bottom part of transition from this chart. So, these pretty align to the upside. You have the 7390 being the first hurdle to the upside. Then you have very little uh resistance into the main pool which is 7440 which might be the high of the day.

[00:46:51]We'll see how this works. uh and um and to the downside you have this cluster of huge uh supportive uh levels down here into the 7300 and also the main pool of the um uh of the structure to the downside. So if we were to break 7350, we would start our journey downwards 30 50 points lower. Uh if that would happen and uh we'll see how that develop. But as of now, we're above these levels trading now at 7370.

[00:47:26]So we're looking to the upside 7390 being the first arrow into the 400. And then we push we can spike higher to my upside target 7440. That would be the bullish target for today on my side.

[00:47:39]>> Now that's about a five delta. The 7440 >> an expected move of about 27 28 if you look at ES. So it would take something to get there.

[00:47:53]>> Well yeah but that's the way the structure is. I mean for me >> I understand that. I saw it too. I mean I'm looking at it from from this point of view as potential. So, for example, trading the 7400 uh straddled uh or butterfly uh you know that that's already in the cards as I see it.

[00:48:13]>> Right. Exactly. Yeah, that's in the cards.

[00:48:15]>> If you go structure something around here which is totally out of the money, the risk the the ratio between the cost and the potential outcome is higher. So instead of just choosing a random price out there, um I use this model and uh you know the riskreward is great because obviously >> Yeah. Yeah. Right. crazy lotto model, right?

[00:48:39]>> Yeah. Now um looking at it from uh a volatility model. So we have here a couple of models over overlapped. We're looking for areas where they compress.

[00:48:52]So you see here that 7425 is actually where it's most compressed indicating that if we push above 7,400 that level will automatically bring bring sellers for various reasons. We don't have to go into it right now. To the downside you can see that it starts compressing at 7530 35 here at this uh this section. So these would be like your natural extremes. This might overlap your expected move, might not. But this shows that >> what number?

[00:49:29]>> So to the upside, uh, we have that 7425.

[00:49:33]>> Yeah. That Yeah. Uhhuh.

[00:49:34]>> To the downside, 7330 35.

[00:49:38]>> Yeah. Yeah. That lines up pretty good.

[00:49:40]natural, your natural uh range uh of things to the upside to the downside and and out of those that's where you know the craziness comes in or the bad news comes in and then they start pushing to the outer more far um targets. When we skew perspective, um what I'm seeing is the following. Um these are these are trades that I captured the previous day and they represent what I think are volatility trades either for convexity uh different spreads they do and other stuff. Um, and this is the way I see it is that we have the 7390 which is the last hurdle to the upside. We take out that uh we basically start pushing into that 25 which happens to be the main position here just like the candy just like the candy graph shows >> uh from a volatility perspective. And um if we're unable to take out this the 7390400 type above this level, uh we basically retrace, go back to to the transition level uh around the 7350 and either get support there, bounce back up to 90, or we start dropping lower going to those uh downside targets. And um uh and we'll see if uh you know sellers sellers come in and step in. But to summarize it, I see transition uh the line in the sand between positive and negative sentiment on the market 7360 7350. So I'm long above short below. Uh realistic targets to the upside uh would be the 7390. Obviously, this was done a long time ago. Uh, and we already tagged us that level, but this is all goex or pre-market and uh these levels are still relevant even more so when the RTA starts. Um, and skew wise again to the upside pretty easy for the market to do 7425.

[00:51:56]uh if it takes that uh 7390 hurdle, I would see the 742520 very easy uh reached. And uh to the downside, the real selling potential uh starts at that 7340, this uh single uh bar section right in the middle here. So that would be the actual level where I think um you'll get some mechanical selling for whatever reason uh to the downside. But as long as we hold those levels specifically 7350ish kind of then the market you know could either be unchanged or uh try and and uh retackle that 7390.

[00:52:41]That's pretty much it.

[00:52:43]>> Great. Thanks. Oh, so um a quick word about uh models.

[00:52:50]It's good. If you notice, uh V trader showed you a couple different models.

[00:52:56]So, when I was talking to Chem recently, you know, not recently, I mean, you know, a few years ago, he was saying that he has So, V showed you maybe five or six models that he uses. Jem says he uses 20 models to come up with his secret source. And he called it a toy model. A toy model.

[00:53:16]So 20 factors is a toy. Let's switch to the old Zen proverb about the wise men and the elephant. One person one person feels the tusk of the elephant and says the elephant is hard. One person feels the uh feels the uh the tail of the elephant and says the elephant is wiry.

[00:53:42]the the tail of the elephant and says the elephant is wiry. One person feels a side and says the elephant is soft and the takeaway is and the takeaway is that our models are inaccurate representations of reality, but they're the best thing we have. And so we're doing the best we can with inaccurate models of reality.

[00:54:15]Have a great day everybody and thanks for uh thanks for participating.

[00:54:25]Click like, subscribe. I'm getting this weird echo.

[00:54:32]Have a great day.