Options Flow Report

By Chris Capre

Option Analysis Review

• SPY took a bit of a tumble on the 1st bad news, first with earnings & second with NFP
• Our 640 resistance held again, but we’re nowhere near that for now with 620 just below
• We start the week with less earnings/events thus more of a ‘free running’ week
• The key in our view is holding 620 and recapturing 630
  

Major Market Indices & Option Flows

S&P 500 ETF ($SPY)

Weekly Recap & Abstract:

Last week SPY was holding near ATH’s and looked set to continue the uptrend after the strong META/MSFT earnings on Weds, but Thurs it got all buggar’d up with the first close < the IM and Thurs aftermarket had poor earnings from AMZN and AAPL. NFP was the final nail in the coffin for the bulls last week coming in well under forecast along with revised numbers for the prior two months being down. And just like that, in two sessions, we went from 640 to 620. We did try to warn everyone in the prior OFR and market commentaries traders simply aren’t positioned for downside action, thus owning puts on SPY or calls on VIX would be workable. Either of those profited well.

Shifting to this week, we find ourselves around some interesting positional levels. Our TGS is parked at 620, which was last weeks lows. The BBP is at 625, which is where we are in pre-market. If we can climb easily on the open above that, we shift to neutral. Above 630 is where the positive gamma really starts to take over. Hence, a close above 630 puts us back into ‘risk on’ mode. Thus, positionally we have a very clear structure to start the week. 

What is interesting to us is despite the selloff, traders didn’t gorge on long puts < 615/610 so that is their max downside thus far. Traders essentially have a mild level of concern, but no panic in sight. If we start hitting 615/610 levels, we think traders will start to increase their level of concern. For now, we might see traders sell the elevated vol to start the week. If that happens, a mild bounce is likely in store.

In terms of ‘events’ this week, we’re much lighter on earnings, but we still have a couple biggies on deck with PLTR on Monday and AMD on Tues. The rest of the week has mostly mid-level companies that could offer some interesting plays. We do have Taco Tariff day (again???) on Aug 7, so we’ll see how this pans out, or gets pushed back again. Any announcements with deals in terms of Canada/Mexico/EU could spark some movement.

Besides this, the markets are in ‘free running’ mode which means they’re mostly dominated by short term flows, not options tied to specific events. If we get a strong bounce to start the week and a close above 630, then bullish bets are back on the menu. But if we get a daily close < 620, then we’re in outright bearish mode till we recover 625 to put us back into our ‘neutral zone’ and above 630 towards our ‘risk on’ mode. Hence, you got your lines in the sand to start the week.

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

• The TGS is below the BBP at 620 which was last weeks lows
• The TCS at 640 would need a lot of tickling from the market to be seen this week
• The TPS has widened the range to 610 so we got a wide spread for our 4 main levels this week
• Our BBP is at 625, but we only get into real positive gamma after 630, so between that is our neutral zone
  
  

Our Trading Plan

• If you believe markets will continue higher this week, we like establishing bullish positions between 620-625 targeting 630 for the week
• If you believe markets will weaken this week, we like establishing bearish positions between 630/625 targeting 620 for the week
• Tactically we remain neutral between 625-630
• If we close > 625 today, we think vol shifts a bit lower, while a close < 620 and vol likely spikes again
  
  

Nasdaq ETF ($QQQ)

What's Happening

• Tech was mostly inline with SPY last week
• Many of the tech skews have come down to earth, so many of them are looking affordable at these levels which may induce buying with a solid start to the week
• TSLA has held 300 again so a weak corrective move into the level might offer a solid bullish setup
• The only tech ticker overpriced at this point is APLD which is looking a bit rich
  
  

Our Trading Plan

• If you remain bullish on tech for the week, we like getting bullish on a close > 560 targeting 570 for the week
• If you remain bearish on tech this week, we like getting bearish on a move into the 560 TGS/BBP combo targeting 555/552 for the week
• We think max upside for APLD is 15 for the week (assuming no new news) so would consider selling call spreads if we get close to that level
• AMZN (surprisingly) and AMD are the only ones with mildly elevated call skews, and the latter has earnings, so a miss on earnings would likely lead to a solid selloff in AMD
  
  

Earnings Highlights & Option Flow Interest

Abstract:

Heading into the ‘mid’ level hitters after Tues….

Source: Benzinga

Current Option Market Positioning for the Week Ahead

SPY Option Positioning & Open Interest:

Total Calls: 5.5M (+.2M)

Total Puts: 12.4M (-.1M)

Translation: Bearish < 620

Largest Gamma Expiry: Aug op-ex 15%

QQQ Option Positioning & Open Interest:

Total Calls: 3.4M (+.2M)

Total Puts: 5.M (-.1M)

Translation: Bearish < 566

Largest Gamma Expiry: Aug op-ex 15%



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