Last week, SPX tested all-time highs at 6,920 while also reaching lows near the key gamma strike of 6,815 — a journey that balanced euphoria and anxiety.
Wednesday morning began with a major risk alert from our AM Founder’s Note, which was validated over the next two days: the combination of the “spot up, vol up” dynamic, overbought index and single stock calls, and extreme COR1M readings helped brew the perfect storm.
When Powell’s hawkish comments hit at 2:30pm on Thursday, S&P 500 HIRO flows swung sharply negative to nearly -$3bn, driving SPX down 0.82% in just 10 minutes.
For SPX, dealers hold largely short gamma positions in the 6,750 to 6,900 range. As we mentioned in Reuter’s on Friday, this positioning requires that dealers sell stock and futures during market declines and purchase stock and futures during rallies, intensifying price movement in either direction.
Next Week’s Outlook: Back to Risk-On
There is good news yet for bulls: the market has burned off much of the dangerous positioning that had us on high alert. The past two days accomplished what we needed to see things return to normalcy — expensive calls decayed, skews normalized, and index-stock correlation shifted away from the danger zone.
We are seeing negative gamma surrounding SPX 6,900, which suggests fluid price action in both directions around this level, still anchored by positie gamma near 6,700. The term structure is showing more moderate IVs for the near future.
With several high-visibility events now behind us, we have room for further vol compression. If SPX volatility were to drop another 1-2 points, it could trigger a vanna-driven rally to target the psychologically important 7,000 level.
Trade Highlight: GOOGL Earnings IV Crush Leads to 2x Return
To demonstrate the power of SpotGamma’s all-new Options Calculator, Founder Brent Kochuba delivered a special subscriber webinar last week showing how SpotGamma insights can help traders play earnings — with GOOGL serving as a prime example.
As GOOGL traded near 270 on the morning of October 29, Brent’s approach began by defining the playing field:
- An options-implied move of ±5% pointed to ~285 as the anticipated upper bound of price action, using SpotGamma’s Earnings Calendar.
- Options hedging pressure made 280 a level of strong overhead resistance, per the Equity Hub Total OI Model.
- The Volatility Dashboard projected an IV crush of 11% by comparing current and forward IV, with significantly elevated premium in the 280-320 range.
SpotGamma’s new Options Calculator was used to model a call diagonal: Sell the 290 call expiring 11/21, buy the 300 call expiring 12/19. This would capitalize on rich premium and elevated call-side volatility, calculating that GOOGL would gravitate towards the large 280 strike.
The IV Settings within SpotGamma’s Options Calculator allowed Brent to model out a meaningful drop in implied volatility with call skew flattening. The estimated PnL showed the position gaining significant value in the event of a vol crush and price increase to 280.
What happened to GOOGL following earnings? The stock rallied to close just above 281 the following day. Implied volatility collapsing by 10-13 vol points for strikes in the 280-320 range as call skew normalized.
The stock gain and IV crush meant Brent’s position gained over 100% return in just 24 hours, with the specific contract value increasing from $0.75 to $1.71.
What made this analysis powerful wasn’t just identifying rich options, but quantifying the edge and allowing traders to visualize how earnings could impact their position. By modeling custom forward IV and skew adjustments, SpotGamma’s Options Calculator helps traders capture profits that would otherwise be missed.
Two Ways to Stay Ahead: Live Webinar + Special Offer
This week, we’re giving you two ways to stay one step ahead: one to help you spot these types of shifts before they hit price, and one to one to seize our strongest 50% OFF offer on annual plans before it’s gone.
Live Earnings Take: AMD & HIMS Volatility Play
Big earnings. Bigger volatility. Before AMD and HIMS report, Brent is going live at 10 AM ET on Monday, Nov 3, to show how our new Options Calculator can help you spot opportunities fast. Don’t miss it!
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