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#Stocks – $QYLD
#Macro – $spx, #rates, $BTC
- RTM- LIVE Q&A Session Tomorrow At 1pm ET -EOM
- RTM: Macro And Flows May Finally All Be In Sync
- RTM: Don’t Expect The Return Of QE Anytime Soon
- Options Update: The Road Higher For The VIX May Get Easier After Tomorrow
The stock market today finished higher. It was an entertaining day, especially if you understood the background of the sudden and “unexpected” rally, especially heading into OPEX tomorrow.
Every month, the Global X NASDAQ 100 Covered Call ETF (QYLD) sells call options in size for the covered call ETF, and that of course, needs to be hedged by the market maker. In December, they sold 4,697 of the January 19, 2024, 16,650 calls. Those, of course, had to be hedged, and the notional value of that, according to the ETFs website was around $8 billion. The market maker was likely short that size in notional value as well, which means that when the ETF covered those, the market maker covered its short. The idea here, is that ETF buys the calls back the day before OPEX, and then on the day of OPEX sells a new round of calls of similar size, which could mean we see a similar $8 billion in notional value of calls sold tomorrow, of which the market maker will the need to short in NASDAQ futures.
The buying of the calls started in size at 2 PM ET, as noted by the steady ramp-up in the volume today at that time. Now, tomorrow, new calls will be sold, and that could erase much of today’s end-of-day move higher when the hedging flows and such come into play, as the fund sell new calls, inwhich the market maker will need hedge by shorting the indexes futures, most likely. These new calls will be sold by the ETF for the February expiration date.
Outside of stronger-than-expected jobless claims and Bostic pushing back against six rate cuts starting in March for the 50th time, it was a fairly normal and, in my opinion, boring day except in Bitcoin, which fell by 4% so far today. I would say that from a technical basis, bitcoin at 40,000 is a very important level, and a break of that level could lead to a sharp decline in the crypto, or whatever it is consider these days, to around 37,450.
We also saw the yield curve rise today by six bps to 4.37% and, more importantly, approaching resistance at 4.40%. That is a big and important region because it acted as resistance as the 30-year was rising in August and September. That level of resistance was first established in October 2022.
And so tomorrow, once OPEX passes, we will have a better view of the entire market as many of these hedging flows fade next week. See you later.
Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.