Market view: May 17/18

Market view: May 17/18

Friday, May 20 seems to be a big "put option" expiry date.

Large open interest in SPY options at $400, with more put options than call options at this strike. On Friday, the expiration of these options could provide a tailwind for markets.

+30% total SPX500 gamma expires Friday 10-15% of total deltas. SPX500, not much resistance up to $4100. Support $3950

High open interest for $4000 SPX500 options. We are being "pinned". It consists mostly of Put options. As implied volatility declines (Vanna trade) and put option decays (Charm), dealers purchase the underlying to hedge their delta

However, the VIX expires on May 18 in the morning, causing more volatility selling.

*If* the market does rally today and tomorrow, we could see a sharp reversal on Friday as investors take profits.

The market is still reacting in a similar way to it did in April when the VIX expired.

We have seen a bit of a rally. The market saw China's announcement that COVID restrictions will be lifted at the end of the month as favorable.

The FED talked about doing 50bps in the next two meetings, pausing, and seeing the impact of rate hikes. That was kind of a slowdown in the pace of tightening. Later the year it was taken positively and maybe that was that lit the matches to fuel a rally in the market.

We were still coming from a place where the VIX was still around 30 and assets were a bit oversold. That was some reason to not be so "bearish". The most shorted assets were leading us out of it like ARKK.

Which bounced like 20%

20% bounce on ARKK

It's still a hilarious chart to look at and what 20% looks like after so much carnage.  

Crypto liquidation was a big driver (including the Luna collapse)

A lot of macro guys are bearish with SPX500 targets between $3k - $3.5k to somewhere in October.

The Federal Reserve's main tool to influence inflation is through interest rates; by raising rates, they can reduce inflation, and by lowering rates, they can increase inflation.

However, the Fed cannot control oil or food prices directly, so its ability to influence inflation is limited.

I think that the only influence the FED has on inflation is to drive down the stock market and the housing market. Create a reverse wealth effect They can't do much about oil prices or food prices from the supply side.

But they can do with the demand-side, which is a rate hike.

Additionally, China's recent economic slowdown has reduced global demand, which has put downward pressure on commodity prices. This might give the Fed more room to slow down on rate hikes, as they can now point to weaker global growth as a justification for keeping rates low.