Powell’s Selloff And the FRY-day Options Gamma Squeeze

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All week we talked about how things would get dicey after Nvidia’s earnings and Fed Chair Powell's speech — and they did.

The ES traded up to 4576.25 on Wednesday evening after Nvidia reported earnings — up almost 30 handles from its 4:00 closing price — then fell 91 points on Thursday and a big increase in volatility came on Friday. The ES rallied into Powell’s morning speech, climbing almost 50 handles from the Globex low, tumbled more than 60 points from the morning high of 4427.75 at 10:15, then regained those losses by the close, ultimately trading 4429 at the session high. Eventually the imbalance pushed sellers into the close.

However, Powell's warning was simple.

After pushing interest rates up to a 22-year high earlier this summer, he said the hikes have not done enough to slow the economy and that sustained growth may require further interest rate hikes to squash inflation. The odds of another rate hike have not exploded higher, but have crept higher since his speech.

There was a comment that said the NYSE volume was low because of summer volume and people being on vacation. That’s as only 850 million shares traded, but that wasn't the case for the S&P futures, as 1.8 million contracts traded.

I just want to note that 96% of the NYSE volume comes from algorithmic and high-frequency trading…it's not really individual names always pushing the markets around, but program trading. These flows have totally taken over the index markets and in turn, have had an enormous effect on the options markets — with 0DTE options adding to the mix — and with Fridays seemingly receiving a constant uptick in volatility.

I told the PitBull to forget the first part of the week and just make all your bets on Thursday and roll the dice for FRY-days options expirations.