Elevated Volatility Ahead as Tariffs Loom, Small Caps Hit Record Streak, Metals Soar, Earnings Asymmetry Grows

$S&P 500 Index (.SPX.US)$ Gamma Exposure (GEX) - 1/22/26

Data from Tier1Alpha's SPX GEX shows currently we are in negative gamma territory, which means market dealers tend to sell into weakness and buy into rallies, which can exacerbate price swings in both directions and drive realized volatility higher. Two things contributed to broader selling last Tuesday: the spillover effect on US treasury yields from JP's jumping yields + geopolitical tension in Greenland (tariff again was on the table). While things unwinded with Trump's speech at Davos, SPX climbed back 1.15% at Wednesday close and remained unchanged with a 0.03% increase last Friday close.

We can also see that the positive-to-negative gamma flip point (zero gamma) is around 6937. However, judging from the put/call positioning, the 6950 level is probably where the more concentrated gamma actually lies. We saw a rebound in the major indices, largely because of Trump’s “concession” (well… with air quotes) on the Greenland issue. However, this rally was not strong enough to bring market makers back to a more neutral gamma stance—that is, back above the positive/negative gamma inflection point. This means SPX remains quite sensitive to downside moves. With ongoing tariff concerns (as noted the Greenland thing is not done and Trump over the weekend threatened '100% tariffs on Canada' if it makes a deal with China). My expectation is that next week we’ll continue to see elevated volatility.

Figure 1: SPX GEX (1/22/26)

Index / Metal

$Russell 2000 Index (.RUT.US)$ logging its 8th all-time high of 2026 and outperforming the S&P 500 for 14 consecutive sessions, the longest streak since 1996. Options trading volume remains relatively flat and put/call ratio at a normal range for both small caps and large caps. Their implied volatility percentile is at a lower range. Especially small caps seem less priced in downside risk --> may still be worth hedging.

Figure 2: SnP600 earnings revisions breath (Left); "fundamentals" regime for small caps (Right)

Morgan Stanley on small caps (Figure 2):

Importantly, relative earnings revisions breadth versus large caps accelerated further last week as the group broke out of a multi-year relative performance downtrend --> leaner cost structures and firmer pricing power benefit small caps, in particular. In our view, this reinforces the idea that the relative strength in small caps since November is fundamentally driven. ...The rolling correlation between small cap returns and real rates is around 0, indicating yields are less of an important determinant right now; it's more about earnings.

Figure 3: 1 month relative return RTY vs. SPX (Left); P/B of Russell 2000 (Right)

Goldman on small caps (Figure 3):

Russell 2000 earnings growth should be strong, but consensus estimates for 61% EPS growth appear far too optimistic and valuations are no longer inexpensive. ...However, we do not expect the Russell 2000 to meaningfully outperform the S&P 500 over the full course of 2026. Given current above-average valuations, our economists’ 2026 real US GDP growth forecast of 2.6% would be consistent with a 12‑month return of roughly 10% for the small-cap index.

We think productivity remains strong, with recent GDP Now adjustment to an estimate of 5.4%. The economy is resilient in a sense to boost small caps. <-- The earnings revisions breadth proves the point, but risks lie in the weakness in employment. Will productivity growth be sustained with the current 'flat' denominator (total nonfarm business payroll employment x average weekly hours in the private sector)?

Metals continued to rally last week with Gold, Silver, Lithium, Platinum & Palladium all hitting fresh all-time highs. The logic behind the surging demand for precious metals, base metals, and rare earth minerals is both increased AI-related demand and rising global defense spending.

Figure 4: REMX price performance and trading volume

Partial position in $Gold Futures (JUN6) (GCmain.US)$ / $Silver Futures (MAY6) (SImain.US)$ this week or next may be worth selling through shorting calls to capture the rich premium and look to replant near lower end of target range. i.e. Covered call for tactical position adjustment.

Mag7 0DTE

Another important development in options is that Nasdaq has added Monday and Wednesday expirations for nine stocks, including the “Mag7” plus Broadcom, as well as the iShares Bitcoin ETF. Although this goes live on 1/26, the first Monday/Wednesday expirations will be next week (check your moomoo, options tab --> Table *make sure you changed the expiration date to all expiration --> you can already see them added in the options chain, Figure 6).

Figure 5: Mon&Wed options expiration for Mag7 and more

Figure 6: Mon&Wed expiration for NVDA

This will bring two main changes:

– It strengthens risk management—allowing for more precise hedging and protection strategies tailored to specific time frames (especially mid-week events like economic data release), without being limited to weekly or monthly cycles.

– It creates more precise trading opportunities. For example, around specific economic events, one could put on a Wednesday–Friday calendar spread to capture vol crush and time decay.

Earnings

In general, we will look closely at whether SPX gamma exposure tends to neutralize throughout the week and the beta risk this brings to the stock market.

An interesting chart from BofA (Figure 7). It shows how stock prices typically react on the next trading day after a company releases its quarterly earnings across history. Looking at recent years' data, the dark blue ** has dipped close to the 0% baseline --> this indicates that even for companies that beat earnings expectations, their stock price hasn't risen particularly strongly. Meanwhile, for companies that miss expectations, the light blue ** has already plunged sharply to around -5% --> these companies are currently suffering far harsher market punishment than usual. It's hard not to think of last week's Intel situation. Can we say that investors have become significantly more risk-averse? --> seems "Good earnings are OKish, bad earnings are super bad news"

Figure 7: Companies being punished more on EPS miss

Figure 8: EM on earings this week

Figure 8 shows the expected stock price move for some spotlight companies this week—these are calculated from their recent straddle prices—with $SanDisk (SNDK.US)$ 's volatility standing out especially clearly. On the strategy side, since overall market gamma is still negative (which can lead to larger swings) --> adding an extra protective leg to reduce risk for option sellers.

$Tesla (TSLA.US)$ - Implied Volatility of 50.02% is low (7% percentile), which explains the lower than expected move; $Meta Platforms (META.US)$ - Implied Volatility of 42.48% is high (79% percentile); $Microsoft (MSFT.US)$ - Implied Volatility of 32.87% is high (91% percentile); $Apple (AAPL.US)$ - Implied Volatility of 30.72% is relatively high (62% percentile); $SanDisk (SNDK.US)$ - Implied Volatility of 109.43% is high (85% percentile).

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