To The Moon

Today's market action can be described as a "bump-and-drop" decline, where any data point is seized upon as an excuse to sell regardless of the actual details.

August core CPI rose 0.3% month-over-month versus 0.2% expected, implying inflation did not continue decelerating as hoped. Analysts suggested this could prompt Powell to skip a rate cut altogether, hence the bearish reaction.

However, trader tools still show consensus expectations coalescing around a 25bps hike. And I noticed the past few days saw institutions struggling to hold back from aggressive call buying in tech names. So let's call a spade a spade - this is just garden variety pullback behavior, no need to grasp at straws for excuses.

The core issue appears to be tech trailing the broader market selloff, which has traders leaning heavily defensive in index products like $SPY$ and $QQQ$ through put spread or collar overwrites. Yet we're already seeing dip-buying call flows resurface in single stock names.

On Tuesday, $QQQ$ saw a large bearish call overwrite: Selling $QQQ 20241018 475.0 CALL$  - 30,000 contracts. Rangebound consolidation remains the path of least resistance near-term.

$20+ Year Treasury Bond ETF (TLT)$

We know a gradual rate cutting cycle should buoy $TLT$, but specifically what are funds anticipating in terms of year-end upside targets?

Two interesting flows on Tuesday:

1. Selling $TLT 20241220 108.0 CALL$  - Implying they don't expect TLT above $108 by year-end.

2. Buying $TLT 20241220 105.0 CALL$  / Selling $TLT 20241220 110.0 CALL$  Call Spread - Positioning for TLT between $105-110 by December expiration.

These two trades are effectively saying the same thing from different vantage points. The first is more defensive, collecting premium against higher implied volatility. The second is outright bullish, but with a defined upside target.

That said, with consensus so firmly bullish, writing cash-secured puts against $TLT$ could offer an attractive way to get long with reduced cost basis over time.