Good Morning,
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Yesterday marked a 12-month high in our intraday volatility model. In case you missed it, the S&P 500 was down by 1.6% early in the trading session but managed to stage an impressive comeback, paring most of its losses to end the day.
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This recovery occurred despite Meta still being down a significant 10.56% by the close. However, at the end of the day, the broader index wasn't really that weak, and thanks to the strong performance of Nvidia and Tesla, most of the negative impact from Meta was offset.
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From a structural standpoint, we suspect Puts were being quickly monetized at the open, which forced market makers to buy back the SPX futures they had previously shorted as a hedge. This buying pressure from dealers unwinding their short futures positions then amplified the recovery, contributing to a 1.14% bounce off the lows.
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This is yet another classic example of how dealers that are short gamma can drive significant volatility at the index level in an increasingly options-dominated world.
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-Tier1 Alpha
