Are Stocks Weaker Than They Appear?
Stocks finished flat, with the S&P 500 up just 12 bps, while the Nasdaq advanced ten bps. The day was not strong for the Russell 2000, down 1.5%; the S&P 500 equal weight, dropping 33 bps, and the Nasdaq 100 equal weight, down almost 50 bps. today is November Opex.
The reason I bring this up is because yesterday was the day we saw the unwind of that Nasdaq 14,600 11/17/23 call option, which traded nearly 7,000 contracts on the day. This was presumably bought to cover, to unwind that covered call position in the Global X Nasdaq 100 Covered Call ETF (Nasdaq:QYLD), which had a delta exposure of about $8 billion. Once the volume picked up in the option around 2 PM ET, the Nasdaq 100 started to trade higher.
Today, we should see a new covered call trade presumable for the December expiration date, which should create a similar amount for sale, which obviously could hurt the market in the afternoon, probably like what we saw on October 20, when the NDX reversed and fell by 1% starting after 1 PM. But we can see what happens.
Anyway, the reason I pointed to the equal-weight indexes is that I am guessing that because the Nasdaq options contract was being unwound, the buying pressure had to reflect somewhere, and given the top-heavy nature of the Nasdaq, it makes sense to see a stock like Nvidia (Nasdaq:NVDA) not have as big of an impact in the equal weight index. It tells us that this was a pretty weak day despite the gains.
The nice thing is that because yesterday’s high didn’t eclipse yesterday’s high, my wave count for the S&P 500 didn’t change. A down day today would be nice because my wave count would still work, and maybe I could have a somewhat less busy weekend.
The other day, there was a lot of fuss about the Russell
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