Now What? - Mar. 20, 2025
My Journal
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Mar. 19
Wednesday was Powell’s day so there wasn’t much ‘edge’ to trade. My only update was that it looked like a stabilization day, which was a nice change from the PTSD carnage I encountered from the Dec. 18, 2024, FOMC meeting.
So with that, after FOMC ‘they’ jammed us up into the close. I was curious earlier in the day what were the sticking points that would pin us. I identified three areas below with 5650 and 5700 most interesting to me. Interestingly, we pinned near 5700 by the end of day and that was it. Based on dealer hedging dynamics, it is to the market makers advantage to have as MANY options expire as possible as they collect the premium to sell to us traders. They do so by having price be as close to the largest open interest as possible without being in the money. Because the options from 5700 did not roll over to the 5750 area, in meaningful volume, the rally stopped dead at 5700.
By end of day our entropic model was showing something odd. Weakness. Again. I kept asking around what sort of macro event would cause a selloff this time. With good reason, not many knew. Anyways I get nervous giving out alerts as I don’t want to give false alarms but I have to be prudent and update what the model tells me. Seasonally, as you know, we should be in a comfortable two weeks but we are approaching Opex and funny things can happen as markets move to the dealers favour.
I alerted I bumped up my hedge to full again after this - I sleep better that way.
Mar. 20
Once again we open gap down for reasons I’m still not convinced. Central banks, SNB, cutting rates (as expected?) should not be causing issues for US markets. So it’s possible this is simply option market manipulation (shocking).
To elaborate on this ‘theory’. I updated Bender first thing and to my surprise it called for BTD this morning. How is that possible? Remember, Bender uses the option chain partly to find anomalies and look for patterns.
Well, ‘they’ ran us back up +40 handles (~5665 was my level of interest) all the way into, you guessed it…5700 and stopped right there. Funny how that works. I am reminded that this is a trader’s market this year and trends are not sticking for very long so take some profits at opportune times - we need to remind each other of that.
Anyways, I closed half the puts around 5665 given this update from our model but I really should have just left things alone. I become victim as well to too many changes during the day and I think it detracts from the bigger picture. As a reminder, my best alpha was looking at markets in the morning and then going to sleep for the rest of the session (back in Asia). I was able to hold the most consistent profit this way and not get biased by intraday movements.
Within 2 hours I already regretted my decision. I was looking at 5700 and I updated Bender again - I thought what are the chances something changed at this level. Well the model seemed to think so. Now I had to deal with the public shaming of making another update. With that this is where we land today. Model is still projecting weakness that I don’t think SPX has actually reacted to. So I am back to full hedge. We still have a long way to go to Apr H2 seasonally speaking.
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