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What a strange day. Overnight futures were sharply lower, with the Nasdaq down more than 1.5% at one point and clear signs of nervousness in global markets. Yet all of that anxiety disappeared almost immediately once the cash session opened. The S&P 500 erased an overnight decline of roughly 1% and finished the day higher by about 20 basis points.
Those cheap 6,900-strike call options expiring today may have been too tempting for the 0DTE crowd to ignore. Still, it remains a frustrating environment. It is becoming increasingly clear—at least to me—that the options market is exerting a growing influence on the S&P 500’s day-to-day price action. In many ways, it seems as though the index is being constrained and held in place, and it is difficult to know how much longer that dynamic can persist, perhaps through quad witching next week.
What stands out most is that the heaviest S&P 500 option activity was concentrated at the 6,900 strike for today’s expiration, and the index ultimately closed at 6,901. That coincidence strongly suggests that options-related flows drove a significant portion of the intraday price action.
Unfortunately, intraday transparency in the options market is limited. It is difficult to determine in real time whether traders are buying or selling calls, since changes in open interest are not available until the following day. With 0DTE options, that information is effectively unavailable altogether—at least with the data I can access. This makes it challenging to develop a precise mechanical understanding of what is occurring beneath the surface.
A trade printing at the ask does not necessarily imply a buyer, just as a trade at the bid does not automatically indicate a seller. Execution mechanics and hedging flows complicate the picture. As a result, interpreting intraday options activity with certainty is extremely difficult.
That said, today followed a fairly classic pattern. The VIX traded overnight around 17, opened the cash session around 16 and then declined steadily to close near 15. A move like that typically reflects one of two dynamics: traders closing out put positions or traders selling calls.
What is perhaps most interesting about today is that the VIX decomposition shows call skew falling while put skew rose. That combination suggests that ATM put implied volatility fell faster than OTM put implied volatility within the VIX index, which is not what you would normally expect to see on a day like today. Under more typical circumstances, volatility would be crushed across puts as hedges are closed. Instead, today’s action suggests that near-money puts were closed out—likely during the morning selloff—while OTM and longer-dated downside protection remained elevated.
(CBOE)
It is almost as if the options market didn’t believe in the snap-back rally, and perhaps there is a viable and good reason for that.
How the market will respond to the second AI company failing to rally following its earnings results is a good question. Oracle declined today, and Broadcom fell approximately 5% after its report tonight. Seems that selling AI “chips” doesn’t deliver a good gross margin in comparison to the other “chips” they sell. At least that is what I thought I heard them say. The stock is likely to have a hard time rising tomorrow, given there are many calls to sell if the stock can’t get over $400.
-Mike
Glossary by ChatGPT
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0DTE Options: Options that expire on the same trading day they are traded, often amplifying intraday volatility and hedging flows.
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At-the-Money (ATM): An option strike price that is approximately equal to the current price of the underlying asset.
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Basis Points: A unit of measure equal to one hundredth of a percentage point, commonly used to describe small changes in prices or yields.
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Call Skew: The relative implied volatility difference among call options at different strike prices.
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Dealer Hedging: The practice of options market makers buying or selling the underlying asset to offset option exposure.
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Implied Volatility: The market’s expectation of future price volatility embedded in option prices.
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Open Interest: The total number of outstanding option contracts that have not yet been closed or exercised.
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Out-of-the-Money (OTM): An option with a strike price that has no intrinsic value at current market prices.
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Put Skew: The relative implied volatility difference among put options at different strike prices.
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Quad Witching: A quarterly event when stock options, index options, stock futures, and index futures expire simultaneously.
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VIX: The CBOE Volatility Index, which measures expected volatility of the S&P 500 based on option prices.
Disclosure
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.
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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.
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