Accurately predicting the recent surge in US stocks, star derivative trader Brian Garrett of Rongzhang's Goldman Sachs believes that there is now an unprecedented situation after the repeated rise of US stocks, and that it should be stopped and not attempted to profit from further gains.
Garrett reminded that traders hold June call options that will expire in the next few weeks. This means that when the stock market rises, there is a squeeze, so the stock market will rise further, triggering more squeezes, and producing a typical option trading gamma squeeze.
After reaching the gamma squeeze, although Garrett still favors all trades except technology stocks, overall, he believes that &#34;this market is taking a breather&#34; and said that &#34;there is almost no option gamma that may trade against this market trend.&#34;
The S&amp;P options chart expiring in June shows that the open call option contract has rebounded significantly, leaving a very clear upward position.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/be4af2b2-991e-4893-aa5b-48da5e0d857c.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/be4af2b2-991e-4893-aa5b-48da5e0d857c.png"/>
The volatility of the S&amp;P index and the implied trading volume of short-term call options have become positively correlated.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/ea4ace7b-0921-40d9-9a6f-80e2085e7995.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/ea4ace7b-0921-40d9-9a6f-80e2085e7995.png"/>
The problem is that from the perspective of the future S&amp;P return, the correlation of spot trading volume is not always very high.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/293e70a2-c56b-4a16-831b-31a1b9d2cddd.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/293e70a2-c56b-4a16-831b-31a1b9d2cddd.png"/>
Another type of chart display shows that it is very rare for the implied volatility of the S&amp;P to rise synchronously with the S&amp;P index itself.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/c076f7a9-60b0-4fec-bd27-54925b8f1afe.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/c076f7a9-60b0-4fec-bd27-54925b8f1afe.png"/>
Making the situation more complicated is that Goldman Sachs' model GS-EQMOVE implies that the asymmetry of the rise and fall of US stocks is underestimated. The light blue area in the figure below represents the possibility of a future rise or fall of 5%, and the dark blue represents the possibility of a 5% rise or fall implied by the option.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/757b76b2-a4fb-4b18-a77b-e3949d46cf53.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/757b76b2-a4fb-4b18-a77b-e3949d46cf53.png"/>
From another perspective, the spot S&amp;P is at a high level relative to the Federal Fund rate of the Federal Reserve in the past 30 years.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/51a0a289-e3c8-425a-875c-ac78af60f55a.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/51a0a289-e3c8-425a-875c-ac78af60f55a.png"/>

.IXIC

Goldman Sachs trader Brian Garrett believes that the market has taken a breather after the typical option trading gamma squeeze. Goldman Sachs' model suggests that the asymmetry between upward and downward movements in the US stock market is underestimated.

Accurate prediction of the current round of US stock market surge by Goldman Sachs trader: It's time to take a break.