The sad thing is that QYLD ETF had to buy back those 19,450 strike price NDX calls that expire tomorrow, today. Yesterday, they closed at $110.30 per contract, but today…Today, they closed at just about $400. So the Notional delta went from around $4 billion yesterday to $8 billion today. Imagine being able to create $4 billion in notional value out of thin air overnight.
Anyway, as usual, the option contracts were bought back starting around 2 p.m., and that continued for the rest of the afternoon.
It does seem odd that in the 930 minutes between 6 PM last night and today’s 9:30 AM opening, Nasdaq futures rose 2.14% on just 146k contracts, but during the 7 hours between 9:30 AM and 4:30 PM, with 415k contracts traded, the futures only rose by nine basis points. Odd.
But the good news is that tomorrow, the QYLD ETF is set to sell about $4 to $5 billion in notional NDX options, probably starting around lunchtime. So, should the futures market players be eager to get a head start—of course, by that, I mean should the opportunity arise, like maybe if the BOJ turns out to be more “hawkish” than expected tonight when they update their monetary policy?Or if the CPI report in Japan comes in hotter than expected tonight, and the BOJ is forced to adopt a more hawkish policy stance and says something “crazy,” like if the economy continues to evolve as anticipated, rates will need to rise? It’s not as if they haven’t said this before. Then, of course, the NASDAQ futures might need to drop overnight, of course.It is possible that the pending CPI report in Japan and the BOJ meeting could explain why the dollar has struggled to break above the 144 level despite a couple of attempts to break it in the past two days.
Let us not forget tomorrow is also quarterly OPEX, and we’ll find out if the market makers will let all those holders of 5,600 SPX calls make out on those options after trading for $42.70 on Wednesday, which closed today at over $100.
The 10/2 yield curve continued to steepen today, closing up five basis points to around 14 basis points. Historically, as in going back to May 2023, at the start of the AI revolution, when the yield curve is flat or inverting, the Nasdaq 100 (QQQ) tends to rise, whereas when the yield curve is steepening, the QQQ usually moves lower. Therefore, based on this pattern, one would not have expected the QQQ to rally today or to continue to rally if the curve steepening continues.
In theory, the S&P 500 formed a wall with a gap pattern at the open—similar to the pattern seen after the post-Labor Day drop. This suggests that today’s rally may not be sustainable, and the gap is likely to be filled, in theory of course.
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