Q2’22 was even worse than Q1’22, making the first half of 2022 the worst half year for the S&P since 1970. In April, U.S. equities fell sharply in April based on fears surrounding the Ukraine war, escalating U.S. interest rates in the face of spiraling inflation, China COVID-19 lockdowns, supply chain disruptions and major technology companies’ earnings misses. In May, the S&P 500 fell a further -7.78% before finishing the month nearly flat. June extended 2022 declines as inflation fears, higher interest rates, and recession predictions pressured stocks lower finishing down more than 8%.
During this period, SpotGamma provided three meaningful key correct analyses during critical times in the quarter that reflect bearish guidance. These include:
4/19 - VIX EXPIRY RALLY FADES
Options Expirations Remove Supportive Positions and Create Downside Risk
In our daily Founder’s AM Note, we alerted our subscribers that we see a likelihood for market weakness. Specifically, mean reversion back into 4400 is quite possible, and we give edge to that scenario as VIX expiry & S&P expiry removes supportive options positions. What followed was a -2% drop in SPX within 2 days, and -7.5% into month end.
5/4 - PROJECTed SELLING AHEAD
Look Out Below as the SG Vol Trigger Breached and the SG Call Wall Holds Strong
We alerted our subscribers that our proprietary metric, the SpotGamma Vol Trigger, moved lower as well as our resistance level dropped from 4400 to 4300. If the market failed to recover above the 4300 level, then we could see a quick test of 4000-4050. The market hit 4300 that day, then sold off -8.5%
6/3 - INVESTORS BACKING AWAY
Short-term Volatility is Shrinking as we Approach a Risky Period
Subscribers were alerted that there was only more week before the big VIX expiration / FOMC / OPEX window, and that the value of short-dated volatility was shrinking. As such, we offered the opinion that these next few sessions could be an advantageous time to consider some downside insurance. The market declined 10% from our recommendation into June OPEX.
1/14 - JANUARY OPEX CRASH
SpotGamma Models Indicate Net Options Delta Expiration at Over $125 Billion
SpotGamma based its case on the expiration of deep in-the-money calls as a catalyst for volatility.
1/25 - THE LOWER BOUND
After Historic Stock Market Reversal, SpotGamma Calls Arrival at Lower Bound
After some extreme move in equities, SpotGamma called for the market hitting its lower bound. The put positions that were on, in a way, became fully hedged which may have resulted in a violent “snap back rally.”
3/11 - FOMC MARKET RALLY
Brent Calls for Market Rally Ahead of March OPEX on the Contrarian Investor Podcast
On the Contrarian Investor Podcast, Brent discussed how options hedging may impact stock prices, and why he thought markets may rally into the following week's options expiration, 3/18/22.