Nomura: Here's What Friday's "Gamma Unclenching" Means For The Nasdaq

Another day, another gain for mega-tech stocks dragging Nasdaq higher (up at least 0.5% for six straight days for the first time since Sept 2003), to fill that gap from Feb 24th..

So with that gap filled, what happens next?

Who knows is the honest answer given the jawboning and intervention on display but as Nomura's Charlie McElligott notes, this Friday may change the picture significantly as options expiration means a significant shift in positioning.

Into this week’s options expiry, Spooz (ref 2927) continue to remain pretty-sticky between 3 of the 4 largest $Gamma strikes on the board, locally with $1.32B at the 2900 line (35% coming-off Friday) and currently buffered between the $1.48B at 2950 (48% comes off) and the $1.28B down at 2850 (33% comes off); the 3000 line is a monster at $2.25B and will also see potential for a “gamma unclenching” after Friday, with upwards of ~29% of the $Gamma potentially dropping post-expiry.

In English, this means that for the first time since February, we see both SPX / SPY and QQQ net Delta and Gamma as "positive" - with the "net delta" position in Nasdaq again being extreme LONG at +$11.5B, which is a 97th %ile rank since 2014.

Running the back-test when QQQ Delta > 95th %ile show that this is actually an incrementally negative “excess returns” signal for the Nasdaq looking-out 1m / 3m / 6m / 12m - despite historic analogs showing still-positive returns

Finally McElligott kicks another leg out from the bullish stool as he offers a quick reminder that the recent “bear-steepening” in UST curves was not a function of a “growthier” reflation view that a re-opening recovery is just around the corner.

Instead, the steepening has been about the triple-impact of:

1) gradual reduction of Fed purchases into...

2) larger than expected UST issuance (particularly towards longer-duration) and...

3) outrageous IG supply (last week @ $107B, MTD @ $168B, YTD @ $1.05T, YTD Δ%: +73.9%) conspiring to drive bear-steepening curve price action, where 2s30s / 5s30s are both in shouting-distance of testing multi-year highs made back in mid-March.

So Option expiry does not support any extension of the current Nasdaq outperformance and neither do the bond market's moves.