Don here...
Financials just dropped 3.3% in a single session.
Brandon Chapman has been tracking a wave of institutional put buying in the banking sector for weeks.
Today, that gamma pressure finally showed up in price.
XLF broke to its lowest level since June of last year. KRE, the regional banking ETF, fell 4.4%. Brandon flagged concerns around Blue Owl and the private credit markets as a potential accelerant for further selling.
The broader setup is just as alarming. The S&P 500 has been trading in a 3% range over the past month while the VIX keeps climbing. It hit 21.38 today.
That combination is abnormal. During a typical consolidation, volatility contracts. Brandon pointed out that SKEW has also risen to 145, signaling that institutions are aggressively adding downside protection through put purchases.
Both VIX and SKEW rising together while the market chops sideways tells you one thing. Hedges are keeping institutions at a comfortable delta level for now, but a sharp move lower could trigger a gamma squeeze that forces correlated selling across sectors.
Brandon walked through the specific options flow driving this thesis in tonight's video.
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Traders are buying May $63 puts on KRE, targeting further downside in regional banks.
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XLF saw April $47 put buying, adding to a month of bearish positioning in financials.
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Wells Fargo alone saw 5,000 March $77 puts trade in a single print.
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The VVIX is bouncing off 110, sitting in what Don calls the VAMA zone, confirming elevated volatility risk.
The sector rotation between tech and staples has masked the underlying stress. Brandon's concern is that financials become the catalyst that pushes institutions from delta comfortable to delta uncomfortable, triggering the kind of correlated downside move where tech and staples sell off together.
Gold and silver both rallied sharply today on dollar weakness. Brandon noted that if financial stress escalates further, the dollar could strengthen as foreign debt obligations create demand, which would reverse that metals trade quickly.
Click here to watch Brandon break down the financial sector put flow and what it means for the broader market
To your success,
Don Kaufman
Chief Market Strategist, TheoTRADE
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