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The SPY That Pinned Me


Be careful -- it could go in reverse, away from popular strikes.

Okay, got numerous requests to look at SPY and offshoots like SDS and SSO.

Here's the issue: There are so many offshoots to SPX Index products, and so many near-money strikes in all of them, that it's rough to find a sweet spot. They're all sweet.

The major driver here of course is the Big Dog itself, the SPX. It's not a Witch cycle, so no futures. However, there are always cash-settled SPX options. And they settle on Friday's opening print. But alas, they can't really pin as we know it since the options themselves stop trading the afternoon before. Any push towards a certain strike can easily evaporate with one wisp of overnight China news.

So that leaves us with the ETF and leveraged ETF options.

The chart below shows SPY 30-day IV over the past 2 months. And as you can see here, like everywhere else, volatility has flatlined at worst, ticked up at best. It's not clear MM's are particularly long paper. In fact, net/net I suspect they're not, given that for one, they see the pathetic HV like we all do, and two, it's likely professionals are buying cheapie VIX calls as insurance, suggesting they want to define their vega risk.

With that backdrop and the general strength in volatility this week, I wouldn't go hog-wild gaming SPY pins. In fact, it might go in reverse and move away from popular strikes.

What are the popular strikes?

Frankly, they all are. August 100 Calls have the biggest at 173K. But keep in mind that with all the trading in futures, e-minis, and SPY itself, that's not enough to generate it's own pin. And like I just said, it might, if anything, serve to repel from there.

As to SSO and SDS, the open interest is relatively tiny and it's not like Financials where the Leveraged ETF tail sometimes wags the dog. If it pins at a strike, it's pure coincidence.
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