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S&P "Boxed-In" Amid Signs Of Retail Call-Buying Exhaustion

Tyler Durden's Photo
by Tyler Durden
Wednesday, Mar 24, 2021 - 10:05 AM

A volatile overnight session in the S&P 500 has left in the middle of a range between 3900 and 3950.

If you look at SpotGamma's total S&P500 profile you can see the “box” the market is in, and whats curious is that this picture has remained the same for the past several sessions. In other words, its not “filling in”.

As SpotGamma notes, "there is a sense of decay or attrition happening on the call side."

Call-option buy-to-open premiums are sliding (less demand)...

And call volumes are down hard... A daily average of 23 million contracts has changed hands on U.S. exchanges over the past five days -- down from more than 30 million in February.

Source: Bloomberg

And the put-call ratio is on the rise again...

Source: Bloomberg

Elevated call volumes “stood out to us as being the best indicator of the public’s intensity of affection for the equity markets,” said BTIG chief equity and derivatives strategist Julian Emanuel.

“It’s not quite as elevated as it was in January, because frankly I think there’s a portion of the public that is sitting on losses in these meme stocks since that time.”

SpotGamma warns that while a few data points certainly do not make a trend, but if you are of the belief that rampant call buying was a key catalyst for markets then this is some cause for concern. We stress that this doesn’t imply the market crashes, but it does suggest less upside fuel.

Finally, we know the reason why call-buying is fizzling out: Daytraders are learning and adapting, and instead of amplifying their returns with leverage (call-buying overlays), they are hedging their positions... which removes one more marginal enabler of the meltup.

And unless Powell and his pals accelerate the buying once more, we suspect the markets will really throw a tantrum.

Source: Bloomberg

Get back to work Mr.Powell. The market will never be satiated as former Dallas Fed president Richard Fisher's previously warned:

"[The Fed] cannot live in fear that gee whiz the market is going to be unhappy that we are not giving them more monetary cocaine."

"Does The Fed really want to have a put every time the market gets nervous? ...Coming off all-time highs, does it make sense for The Fed to bail the markets out every single time... creating a trap?"

"The Fed has created this dependency and there's an entire generation of money-managers who weren't around in '74, '87, the end of the '90s, and even 2007-2009.. and have only seen a one-way street... of course they're nervous."

"The question is - do you want to feed that hunger? Keep applying that opioid of cheap and abundant money?"

"...but we have to consider, through a statement rather than an action, that we must wean the market off its dependency on a Fed put."

Those words were spoken almost exactly a year ago!

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