MARKET WRAP

A quiet day for most of the day with a sharp move higher in the last few minutes. The result? New closing highs. SPX, which stayed within a 25-point range most of the day closed strong +0.25%. QQQ was +0.25% as well. IWM finished +0.45%. Both yields and oil were higher today, appearing to take some of the wind out of equities’ sails early. The US10Y rose to 4.55%, settling in the middle of last week’s volatile range (4.45%–4.65%). Traders may want a move below 4.50% for more confidence to keep buying stocks, although we’ll see. Oil gained +1.5%. The VIX was basically unchanged at 15.35. (Some explainers on where we are in option/equity liquidity conditions at the bottom of this email). On today’s RiskReversal pod, Liz and Guy discuss why a "slow" news week isn't always slow. On MRKT Call, Guy and Dan cover all-time highs, WMT earnings, and more. Enjoy!

MRKT MATRIX: February 18, 2025

Today’s Top Stories:

• S&P 500 sets fresh record as stocks rally into the close (CNBC)

• Investors Haven’t Been This Pessimistic About Stocks Since 2023 (WSJ)

• BofA Survey Shows Investors Haven’t Been This Risk-On Since 2010 (Bloomberg)

• Fed Wanted an Inclusive Jobs Recovery. Some Are Asking If That Helped Fuel Inflation (Bloomberg)

• U.S. homebuilders raise alarm over tariffs as sentiment falls to 5-month low (CNBC)

• Intel Shares Surge the Most Since 2023 on Breakup Speculation (Bloomberg)

• Musk Debuts Grok-3 AI Chatbot to Rival OpenAI, DeepSeek (Bloomberg)

• Trump and Putin Teams Meet in Saudi With Europe Sidelined (Bloomberg)

• Israel Says It Will Begin Talks With Hamas on Ending War in Gaza (WSJ)

Today’s MRKT Call is Presented by Robinhood

How to Trade Stocks Near Record Highs

Guy and Dan kick off the show with a look at the SPX chart, with recent dips being quickly bought and once again bumping against all-time highs. They then check in on the "Fateful Eight," highlighting DE’s sharp recovery from an earnings-driven sell-off, leading to a parabolic breakout in recent days. Next, they examine the NDX, which is making a new high—though just barely—and remains heavily reliant on NVDA’s earnings next week. Speaking of NVDA, they review the SOXX ETF, which is back at the top of its recent range but has been lacking the leadership of the past two years. They also dive into INTC, exploring its move off recent lows and questioning how far it can run from here. In the Options Action segment, they break down SMCI’s recent rally and search for explanations to explain the move or whether it’s another trap. For the Call of the Day, they spotlight SNOW. Finally, they preview WMT ahead of earnings, analyzing its parabolic chart and sharing two options trades: one bearish and one designed to protect gains for those holding the stock.

Click here to access all of the charts mentioned in today’s MRKT Call.

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Today’s RiskReversal Podcast is Presented by CME Group and SoFi

Idle Markets Are The Devil’s Workshop

Guy Adami and Liz Thomas discuss the relatively quiet financial markets of the week. They delve into personal anecdotes to highlight how calmer periods can still lead to significant market movements. The conversation explores the performance of the S&P 500, bond market fluctuations, and the impact of macroeconomic data like the CPI print and retail sales reports. They also speculate on the potential consequences of an audit of Fort Knox on the gold market. Both hosts share insights on portfolio diversification strategies, the risks and rewards in the current investment environment, and the significance of key upcoming earnings reports, particularly Walmart's, as a barometer for consumer behavior.

Timecodes 

• 0:00 - Slow News Week

• 9:30 - Job Market

• 13:00 - Gold

• 17:43 - Volatility

• 20:53 - China

• 25:00 - The Consumer

What’s Next?

Traders were not pricing in much volatility for this week, and today’s intraday action reflected that, with small rallies sold and shallow dips bought. As we’ve discussed here the past week, that behavior often stems from short-term options market dynamics and equity liquidity patterns, which can help predict near-term market volatility.

The SPX options chain often shows a common pattern: upside calls are frequently sold, while downside puts are bought. This positioning creates key supply and demand zones that influence market behavior.

Downside: The Put Zone and Volatility Spikes
On the downside, large concentrations of put open interest can accelerate volatility during sell-offs. When the SPX falls into these heavy put zones, market makers—typically on the other side of those trades—must sell stock to stay delta-neutral as their short puts increase in value. This hedging activity can amplify declines, creating a feedback loop or gamma trap. Each time selling is exhausted, rip your face off rebounds often follow. Rinse, repeat until a rally is large enough to escape that zone back towards where calls have now been sold with the market lower.

Upside: The Call Zone and Volatility Compression
On the upside, the opposite occurs. Traders often sell calls above the money. As the SPX rallies into these call-heavy zones, market makers sell stock to maintain delta neutrality, creating overhead supply into the rally. If the index then dips back below those key strike levels, market makers rebalance by buying back stock, creating a tight floor for prices. This activity can compress both actual and implied volatility, sometimes for days or even weeks. This effect is often the most robust following a vol spike where the overall trend rapidly flips from option buyers to option sellers, even abandoning out of the money put protection to temporarily avoid the hit from decay.

Key Levels and Expiration Impact
This positioning effect is most pronounced ahead of major options expirations. Into and out of large expirations many of those positions roll off, potentially freeing the market for more directional moves out of the expiry. This Friday’s expiration is one example, as the SPX is stuck in a zone of high gamma near prior highs. While some overhead supply will roll off after Friday, a significant amount remains between 6150 and 6200 until the March expiration.

The Road Ahead
Until the SPX breaks above 6200, realized volatility is likely to remain low, with shallow dips quickly bought and rallies having to grind. A breakout above 6200, however, could trigger sharp upside moves (this is not guaranteed, it sorta depends how it breaks through). And unless any near term sell-off is severe enough to push the SPX below 6000, those market makers currently selling stock near the highs become dip buyers of stocks, flipping the stock they are selling now. Falling back into that put-heavy zone (below 6000) would reintroduce volatility and increase the risk of sharp declines and day to day volatility we saw for much of early 2025.

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