Hey There Income Hunter,

On a day when retail sales and industrial production showed some positives for the  it was the usual FedSpeak that dominated headlines …

Three Fed talking heads spoke a lot about nothing so the dollar, stocks and bonds all corrected from their recent trends. 

Bullard was first off the blocks pre-opening and was the most dovish saying that the Fed must monitor the impact of global quantitative tightening (QT) … She also threw in that the US will be the reserve currency for a long time.

Kashkari was also a bit dovish saying that central banks can lower demand but they don’t know if Fed action will trigger recession. My take is just saying recession shows they are concerned.

Lastly King Bozo J. Powell hit it home with a more hawkish tilt by saying he won’t hesitate to raise rates above neutral if needed although he left the caveat that there could be some pain involved.

Today, I will update you on the option flow analysis going into Friday’s large gamma expiration for SPX, SPY, NASDAQ, and QQQs. 

Powell Holds Steady on Hawkishness

The indexes traded flat most of the day heading into the 2 p.m. speech by Powell. They then traded higher as Powell chose not to elevate the Fed’s hawkishness of late. 

There was strong put and call selling throughout the day and market makers hedging this trade resulted in option driven-flows that boosted stock buying.

I talked about recent SPY activity as the market approached VIX expiration, and we saw a mini VIX crush into its April 20 expiration. 

That episode boosted SPY’s price, as well, but it was a short covering rally that provided a good selling opportunity and I was looking to sell SPY 410 yesterday if it reached there for a quick trade.

Now, as we head into the May 20 expiry on Friday we could see additional market maker covering of short stock delta hedges and a SPY rotation above 410. 

I am looking to scale into bearish SPY and QQQ option strategies as SPY trades above 410. We may see a bit more on the upside, so scale into your bearish stock or bullish VIX trades as the market grinds higher. 

Notice the chart in SPY below that shows massive selling that came in last time SPY rallied. I want to lean on that selling and build bearish positions into the June and July expiries because the macro picture is still longer-term bearish.

Bring It Home

Understanding the option flows into expiry can really help you book some profits in a bear market and reset your short at more advantageous levels.

We’ll see plenty of bearish headlines and data in the weeks ahead so take advantage of this relief rally and as always …

Live and Trade With Passion My Friend,

Griff