Market Report · November 2025
During recent trading sessions, the major indices have shown signs of exhaustion at higher levels, with a decline in institutional buying momentum and a rise in short-term implied volatility. The structure of the The S&P 500 and the Nasdaq 100 This reflects a phase of contained distribution, with accumulated technical divergences and an increase in the volume of puts purchased at 7, 60, and 776 DTE. In this context, I am conducting a Tactical entry using call options on the leveraged inverse ETF SPXS.
The position
The position is one Long Call Strategy which directly exposes us to an increase in the value of the leveraged short index on the SPX:
| Parameter | Details |
|---|---|
| Underlying | SPXS · Direxion Daily S&P 500 Bear 3X Shares |
| Contract | Call 40 · Maturity: January 16, 2026 |
| Directionality | Bullish on SPXS → Implied Downside in the S&P 500 |
| Time Horizon | 76 DTE since the position was opened |
| Adjusted delta | Elasticity >0.40 compared to the underlying asset |
| Maximum risk | Premium Paid (Limited) |
| Potential upside | Open amid sharp declines in the SPX |
The choice of a Call 40 With ~76 days to maturity, it allows investors to capture a potential corrective move in the S&P 500 without incurring the daily erosion typical of leveraged ETFs, thereby benefiting from a delta-adjusted elasticity greater than 0.40, which amplifies the premium's positive sensitivity to increases in implied volatility and declines in the index.
Unlike direct short positions in futures or short positions in stocks, a call option on SPXS has a a fixed risk from the start: The maximum loss is always the premium paid. If the S&P 500 continues to rise, the position simply expires worthless. If the anticipated correction occurs, the convexity of the leveraged ETF (×3), combined with the leverage of the option, generates an asymmetric return far greater than that of a direct position.
For more details on the final results of this transaction once it is completed, see the article: Reactivating Smart Coverage: Result +44% on SPXS STK 40.
Macroeconomic Context
The rationale behind this position is not tactical, but rather structural: a set of converging signals pointing to a gradual deterioration in credit conditions and a loss of momentum in the factors that had sustained the final leg of the rally.
Signal 01
The starting point is the U.S. commercial real estate market. The delinquency rate on commercial mortgage-backed securities (CMBS) has returned to levels not seen since 2008. In October, delinquency rates in Office CMBS rose 63 basis points to a record 11.80%, surpassing the peak of 10,70% recorded after the Great Financial Crisis. Since October 2022, the cumulative increase amounts to 10 percentage points.
The tension is not limited to the office sector: the Multifamily CMBS yields rose 53 basis points to 7.10% (highest level since 2015), and the The overall delinquency rate for CMBS stands at 7.46%, the highest level in at least four years. All of this is happening while the Commercial banks have record exposure to real estate loans, posing a risk of spillover effects on its balance sheet.
Source: Trepp · FRED (Federal Reserve) · Compiled by the author — Diego García del Río · November 2025
Signal 02
The most restrictive message from Jerome Powell notes that a rate cut in December «It is far from a certainty». The change in tone neutralizes part of the easing narrative that had sustained risk assets in recent weeks and reinforces the scenario of high rates for a longer period of time, The real estate credit is showing signs of stress.
Signal 03
According to the latest report from Goldman Sachs Prime Brokerage, hedge funds were net buyers of global stocks for the second consecutive month (+0.4σ), driven by sustained buying of individual stocks. However, the most significant figure is in the macro positioning:
| Segment | Flow | Level | Context |
|---|---|---|---|
| Individual Actions | Net purchase | 6th consecutive month · +0.7σ | Long/Short Ratio: 3 to 1 · Technology, Industrials, Materials |
| Macro Products (Indices and ETFs) | Net sales | 4th consecutive month · –0.3σ | Short positions 1.3 to 1 compared to long positions |
| U.S.-listed ETFs. | Net Shorts | +10,101 TP3T per month on short positions | Small- and large-cap equities + corporate bonds |
| % Short Positions in ETFs on Total | — | 13,301 TP3T of the total short positions | 96th percentile for the past year |
This institutional repositioning indicates that the funds have begun to hedge long exposures with systematic index sales., a strategy that typically precedes periods of correction in the equity market when credit conditions deteriorate. The concentration of short positions in ETFs in the 96th percentile for the past year confirms the scale of the defensive shift.
Synthesis
Short-selling is not justified as a speculative tactical move, but rather as a defensive position in the face of structural deterioration which converges to three simultaneous vectors:
The Fed maintains a restrictive bias which is putting pressure on multiples. The market for commercial real estate loan It acts as a source of systemic risk, with CMBX spreads widening and delinquency rates exceeding the critical threshold of 10%. Commercial banks with record exposure to CRE are vulnerable to any contagion from the sector.
Hedge funds are systematically selling indices and ETFs while maintaining long positions in individual securities: the classic strategy of reducing beta exposure in environments of deteriorating credit conditions. The VIX above 22 indicates early signs of stress.
The Long positions lose their asymmetry as interest rate cuts cease to be an immediate catalyst. The economy is beginning to reflect the consequences of two years of restrictive monetary policy. Hedging becomes the most rational approach to risk management in this context.
Interactive tool
Enter the current price of SPXS, the estimated percentage decline in the SPX, and the call option parameters. The tool estimates the new price of SPXS (assuming a multiplier of ×3) and the potential return on the premium.
Frequently Asked Questions
SPXS (Direxion Daily S&P 500 Bear 3X Shares) is a leveraged inverse ETF that seeks to track three times the inverse daily movement of the S&P 500. If the S&P 500 falls by 1% in a single day, SPXS rises by approximately 3%. Buying out-of-the-money (OTM) calls on SPXS allows investors to capture potential market corrections with risk limited to the premium paid.
The call option offers superior convexity: risk is limited to the premium paid, while the upside is amplified if the corrective move is significant and rapid. Furthermore, as an option with 76 DTE, it avoids the daily erosion of the leveraged ETF’s value in sideways or moderately bullish markets.
Several indicators point in the same direction: (1) delinquency rates on office CMBS are at a record high of 11.80%, surpassing the peak of the Great Financial Crisis; (2) Powell is hawkish, and a December rate cut is far from a certainty; (3) hedge funds are increasing their short positions in macro products to the 96th percentile of the past year, according to Goldman Sachs; and (4) the VIX is above 22.
Since SPXS tracks the daily movement of the SPX with a 3x inverse ratio, when the SPX falls by X%, SPXS rises by approximately 3X% on that day. For prolonged movements lasting several days, the effect of daily rebalancing introduces some lag, but in rapid, straight-line declines, the amplification is close to the nominal 3x multiplier.
Markets by Diego is the financial analysis platform of Diego García del Río, a Spanish economist and independent private investor, and founder of Hill Valley Consulting. He publishes asset analyses, macroeconomic reports, and strategies involving options and leveraged ETFs, along with tracking of actual trades in international markets.
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