What the S&P 500 Needs to Escape Its Range
Currently, the S&P 500 seems to be trapped within a defined range, likely due to the JPMorgan collar that includes a call option at the 5,750 strike price, sold at the end of the June quarter.
This situation means that market makers are theoretically long on these calls and must hedge their positions by taking short futures positions.
As the notional value of these calls declines, market makers will need to cover their shorts, which involves buying back into the S&P 500. This buying activity provides some support to the market since we’re close to that strike price.
Conversely, market makers are required to short more futures each time the index rises. This dynamic will shift on September 30, when the current position will close, and a new one will be established. This creates the impression of being stuck for the time being.
Interestingly, the notional delta value appears relatively low at around $10 billion. I believe that it would only take one strong day of significant trading volume to break free from this range.
Is a Correction Looming for the Nasdaq 100 Amid Steepening Yields?
The 10/2 yield spread continues to steepen, reaching a positive 23 basis points yesterday. So far, the Nasdaq 100 has remained relatively unaffected, trading flat.
Historically, in the past two years, a steepening yield curve has often preceded corrections in the Nasdaq 100. However, this trend hasn’t manifested in recent days, as the index has primarily moved sideways when more volatility was anticipated.
Micron (NASDAQ: MU) recently reported earnings that were satisfactory, bolstered by solid guidance. The earnings call was crucial for Micron, and they successfully delivered the strong guidance needed.
Given the stock’s positioning, it was expected to decline unless it surpassed the $103 mark, a level that could trigger a further rally. Fortunately for them, Micron did clear that threshold, so there isn’t much left to critique.
However, if the $103 region were to come back into play for any reason, it could lead to an interesting unwind situation. We’ll have to wait and see how it performs during regular trading hours, as the future movement remains uncertain.