The final week of July proved to be quite dramatic. An FOMC decision, PCE inflation data, and the Super Bowl of Q2 earnings all took place over the span of just 2 days, with companies representing 36% of the S&P 500 by weight reporting results last week.
The results were extreme: U.S. 30-year treasury yields surged to the highest level since 2007, and the hedge fund Situational Awareness dramatically sold its entire public equity portfolio to Citadel. Yet in the face of this turbulence, the S&P 500 finished the week roughly unchanged at 7,490 — a mild gain of 0.34% for the week despite an average intraday move of 1.3%.
We have previously written about the ongoing contradiction between index calm and single-stock chaos. The question remains whether this becomes the “new normal” that traders must adjust to. As we wrote in our pre-market Founder’s Note on July 30:
“Top AI names are down 30% in a month – and dispersion is coming down. Further, correlation is lifting. This is a signal that the manic AI upside chase is dead, and now we risk seeing all stocks writ-large correct (price lower, vol higher).”
Last week’s memory stocks volatility and earnings-driven rallies in MSFT and AMZN are two sides of the same coin. With larger price swings becoming the norm, sharp corrections and rallies can turn into existential events for overly concentrated traders.
For index traders, the risk is that sector-spanning turbulence could spill over into wider price swings in SPX and other major indices. For single stock traders, higher-volatility environments create both unique risks and trading opportunities to stay aware of.
SNDK Represents Recent Volatility Extremes
Sandisk (SNDK) best illustrates last month’s AI slump and sector volatility. As one of the central names in the Situational Awareness unwind, SNDK rallied over 30% from Wednesday to Thursday after falling 60% from June highs.
SNDK remains a core name in the ongoing AI infrastructure buildout. As a result, moves of such magnitude are remarkable for a company with a market cap approaching $200 billion.
The options market has consequently priced in continued movement in the stock. At-the-money implied volatility remains above 175% with an options-implied move of roughly 16% ahead of next week’s earnings. As a comparison, ATM implied volatility is closer to 54% for semi ETF SMH — less than one third that of SNDK.
Interestingly, a recent 13F filing from Situational Awareness noted a sizable SMH put position. This likely served as an attempt to hedge their exposure.
However, the challenge is that correlation between SNDK and SMH is far from perfect. Although SMH puts can capitalize on broad semiconductor downside, they may not offer sufficient protection for a concentrated and highly leveraged portfolio dominated by high beta names such as SNDK.
How Have Institutional Players Hedged this Market?
For traders seeking a hedge for single-stock exposure, a collar (or risk reversal) may offer a relatively cost-efficient alternative. We observed one such trade in the July 27 FlowPatrol report, with ~1,000 lot SNDK January 1880 calls sold to help finance the purchase puts at the 1400 strike.
This is not a trade recommendation or advice — simply an example of how one market participant sought to capitalize on potential downside in SNDK.
This trade took place the previous Friday, July 24, just before the drop at the start of last week. Selling out-of-the-money calls takes advantage of elevated call skew, while long puts provide protection should the stock experience sizable decline.
With IV extremely elevated, a collar may provide a capital-efficient hedging strategy for SNDK holders versus purchasing outright puts. Similarly, a ratio put spread could also work to reduce premium costs while providing strong returns.
The Week Ahead: SpaceX Earnings and Lockup Expiration
The upcoming week continues the trail of earnings reports for major tech companies:
- Monday, August 3: PLTR
- Tuesday, August 4: AMD, SPCX
- Wednesday, August 5: UBER, SNDK:
SpaceX (SPCX) earnings serves as the most structurally important event this week, reporting its first earnings as a public company. As SPCX is still in the early stages of commercialization and not yet profitable, we encourage any trader playing earnings in the stock to pay careful attention to options positioning and dealer flow dynamics.
We also note that over 900 million shares become eligible for sale following the lockup expiration on August 5. This could create a supply event larger than the IPO itself.
With the stock already trading below its IPO price, the question is whether the market has already discounted that additional supply. In the past, companies such as META, CAVA, and ALAB established short-term lows following their initial post-IPO lockup periods. If the market correctly anticipates this supply event, the removal of that overhang could become a catalyst for SPCX.
