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Nov 23, 2022 | Option Levels | 0 Comentarios

Futures are up slightly to 4015 ahead of a few key data points today, including 2pm FOMC minutes. 4000 remains our large pivot area, and what we’d mark as “fair value”. Resistance above shows above at 4024 and 4052. Support shows at 3945 & 3900.

We anticipate today’s series of data triggering a fair amount of volatility (1% moves), capped off by the 2pm ET Fed Minutes. Our expectation is that a shift higher in markets will find some support as higher markets would press into material positive gamma. We see the 4100 strike as the top of our range into next week.

Downside moves are likely met by short term vol sellers, with support showing today at the Vol Trigger(3945). It would likely take a few sessions to wear down support and break 3900. Below 3900 may lie a real spike in IV.

In yesterdays AM note we noted the bullish setup and gave edge to the S&P returning to 4000. The 400SPY/4000SPX strike holds the largest options positions (and has been for much of ’22), and what we mark as a point of equilibrium for the S&P500. As shown below, there are primarily call positions above (black) and puts below (teal).

SPY Options Gamma

One could also make the argument that IV is also now at equilibrium, as the VIX tagged ~3 months lows yesterday just as the SPX tagged 4000. This happens into today’s data heavy, low liquidity session. Prior to ’22 we wouldn’t pay much attention to the Fed Minutes, however in recent history it has been triggering shifts in volatility.

This is shown in the chart below, particularly wherein the Minutes led to big changes in August volatility (h/t @MichaelMOTTCM). Again, today’s data comes into light holiday liquidity.

VIX Changes h/t @MichaelMOTTCM

To this point on “fair value” in IV, in the middle plot below are several windows of realized volatility. As you can see they have all converged around 26, with 5 day (red) dropping sharply after last weeks OPEX pin. There are some systematic strategies which track the relationship of these moving averages (i.e. 2 month RV under/over 6month RV) as bullish/bearish signals. Today’s data could be that trigger to press an RV trend, and start a near term risk on/risk off move.

Rounding this out, we have been receiving several questions about our outlook into December. While we hold a fairly neutral to mildly bullish outlook into next week, the December window of weakness is still wide open.

Following today’s data, traders likely turn their attention to the holiday and as a result maintain fairly light risk. Also, as noted several times, traders have been selling short dated IV when given the chance. For these reasons we think the market is supported into next week.

However, as we approach December there are two major events. First, is 12/14 FOMC, and second is the massive 12/16 December OPEX. Should markets start to slide into the start of December, the Dec OPEX puts will draw short hedges which likely serve to draw markets lower. Further, the fact that FOMC is 2 days before OPEX indicates that traders may avoid shorting IV into equity drawdowns. This is the risk that’s looming, and we mark 3800 as our key downside level.

Below is a chart of 2018, and the red area highlights December 3rd to December 21st OPEX. Over this period the S&P was down ~10%. The key here is that we need some type of trigger to initiate the selling – and we are unsure if that arrives.

The critical insight lies with the idea that should selling start the volatility and magnitude of a drawdown will be above market expectations due to the options & IV positioning. For this reason we think downside lotto tickets (i.e. puts) are worth considering into December.


SpotGamma Proprietary SPX Levels Latest Data SPX Previous SPY NDX QQQ
Ref Price: 4003 3993 399 11724 285
SG Implied 1-Day Move:: 1.08%, (±pts): 43.0 VIX 1 Day Impl. Move:1.35%
SG Implied 5-Day Move: 2.95% 3967 (Monday Ref Price) Range: 3850.0 | 4084.0
SpotGamma Gamma Index™: 0.86 0.14 -0.05 0.03 -0.01
Volatility Trigger™: 3945 3945 399 11475 282
SpotGamma Absolute Gamma Strike: 4000 4000 400 11650 290
Gamma Notional(MM): 247.0 257.0 -208.0 5.0 -120.0
Put Wall: 3800 3800 380 11000 280
Call Wall : 4000 4100 415 11650 290
Additional Key Levels Latest Data Previous SPY NDX QQQ
Zero Gamma Level: 3958 3949 402.0 10773.0 295
CP Gam Tilt: 1.25 1.15 0.91 1.45 0.93
Delta Neutral Px: 3940
Net Delta(MM): $1,762,599 $1,740,127 $162,750 $53,190 $96,487
25D Risk Reversal -0.05 -0.04 -0.05 -0.04 -0.06
Call Volume 406,044 376,897 1,792,280 5,340 806,850
Put Volume 771,747 647,457 2,383,100 4,039 1,091,557
Call Open Interest 6,481,910 6,516,871 6,890,366 64,248 5,072,778
Put Open Interest 11,477,308 11,182,202 11,404,851 62,221 6,953,835
Key Support & Resistance Strikes:
SPX: [4050, 4000, 3950, 3900]
SPY: [420, 400, 390, 380]
QQQ: [300, 290, 285, 280]
NDX:[12500, 12000, 11650, 11500]
SPX Combo (strike, %ile): [(4200.0, 91.01), (4152.0, 87.12), (4124.0, 74.4), (4100.0, 95.09), (4076.0, 89.35), (4060.0, 83.92), (4056.0, 84.49), (4052.0, 96.15), (4040.0, 75.63), (4036.0, 82.75), (4024.0, 88.95), (4020.0, 81.56), (4000.0, 97.05), (3900.0, 78.97), (3852.0, 78.28), (3835.0, 80.81)]
SPY Combo: [399.5, 404.7, 409.5, 419.5, 407.1]
NDX Combo: [11654.0, 11479.0, 11889.0, 11725.0]
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