Upside Opens Up Ahead of CPI, Downside Risk Diminishes

Previous U.S. data releases showed persistently elevated inflation, leading markets to price in a slower pace of Fed rate cuts this year. Meanwhile, comments from Fed Chair Powell later on became the focus.

Options market data suggested a more positive view on the S&P 500, with institutional positioning for the index to hold above 520 through June 14 expiration. Upside room continued to open up in QQQ. For the small-cap Russell 2000, there was room left for a 2.4% rally this week, while expectations capped downside below 2.4% by June 21.

Details:

The $SPDR S&P 500 ETF Trust(SPY)$ saw open call interest decline -0.3% over the past 5 days. Open put contracts rose 0.6% over the same period.

For call options, investors sold the most $SPY 20240919 660.0 CALL$  with a 660 strike, adding 12,000 contracts. This implies expectations capping upside in SPY below 26% by September 19 expiration.

For put options, the most bought was the $SPY 20240524 510.0 PUT$  with a 510 strike, adding 12,000 contracts. This signals expectations for a decline over 1.9% in SPY by May 24 expiration.

The $Invesco QQQ(QQQ)$ saw open call interest rise 1.4% over the past 5 days. Open put contracts increased 1% over the same period.

For call options, the most actively traded was the $QQQ 20240621 450.0 CALL$  with a 450 strike, adding 6,795 contracts.

For put options, investors sold the most $QQQ 20240517 404.0 PUT$  with a 404 strike, adding 15,000 contracts. This suggests expectations capping downside in QQQ below 8.8% by May 17 expiration.

The $iShares Russell 2000 ETF(IWM)$ saw open call interest rise 2.5% over the past 5 days, while open put contracts declined -0.1% over the same period.

For call options, investors bought the most $IWM 20240515 209.0 CALL$  with a 209 strike, adding 15,000 contracts. This implies expectations for a 2.4% rally in IWM by May 15 expiration.

For put options, investors heavily bought the $IWM 20240621 199.0 PUT$  with a 199 strike, adding 23,000 contracts. This signals expectations capping downside in IWM below 2.4% by June 21 expiration.