VIX Options Expiration May Unleash The Stock Market

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10/18/22

#STOCKS – $NFLX $ISRG

MACRO – $SPY, $QQQ, $VIX $MOVE

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MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN ISRG

I’m back after a rare day taken off. Stocks finished mostly higher today, with the S&P 500 rising by around 1%. The S&P 500 finished at approximately 3,720, with options expiring on Friday and the big gamma level still at 3,700. I doubt we will see much and advance from here.

That gamma level should work to keep the S&P 500 index pegged at least until Friday morning, but we will see. What complicates things is that tomorrow morning will expire the VIX options, which means we should see the VIX begin to trade more freely and break either higher or lower from this 30 to 32 region.

What may have a big impact will be some economic data tomorrow, which could work to move rates higher, with the eurozone and the UK CPI report overnight, and then US housing data in the morning. It almost appears as if there is a cup and handle pattern in the 10-yr rate, and if so, that would be a bullish continuation pattern that could send the 10-Yr higher. Today, the BOE confirmed it would start selling gilts on November 1, and a hotter-than-expected UK CPI report could increase rate volatility.

The ICE BofA Move Index is still very high, suggesting equity market volatility may be too low.

I guess we will just be left to wonder for another day if what we are seeing forming in the S&P 500 futures is a bear flag or not. We should have a good idea by tomorrow, would be my guess. The big question is if all the owners of puts down at 3,600 will let all their puts expire worthless on Friday morning.

There is a similar chart pattern in the QQQ with more of a bear flag. The QQQ has a big gamma level at $270, leaving little room to move, and the QQQ has a lot of puts down at the $260 level. So it comes down to whether or not the $260 put owners will let the QQQs run away from them.

Netflix (NFLX)

Netflix reported results today. I’m surprised by the market reaction. Yes, results for the third quarter were better, but that was a meager hurdle to beat. The fourth quarter guidance wasn’t good, with earnings guidance coming in below estimates, revenue guidance missing, and subscriber growth outlook a bit better. The company also noted it would not provide paid membership guidance after the fourth quarter because they are trying to shift investors’ focus. Remember how well that didn’t go for Apple when they stopped giving iPhone breakdowns? It took a while for that model to be accepted; I don’t think it will be different for Netflix. Essentially, this move indicates that this is no longer a subscriber growth story, and they are trying to refocus investor attention away from that part of the business. Additionally, I wonder how much the new ad model will cannibalize their paid user base.

I know the stock is trading up to around $270 after hours. We will see if those gains hold for the rest of the week.

Intuitive Surgical (ISRG)

It would be nice if ISRG broke that downtrend after it reported results. The company saw procedure growth move back to 20% and reported better-than-expected results. The company also increased its procedure growth for 2022 to 17 to 18% from 14 to 16.5%. A move above $210 could send the shares back to $230.

-Mike

Charts used with the permission of Bloomberg Finance LP. 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 investments.