We’re finally at election day as futures have jumped higher to the 3340 area. That establishes us in a positive gamma position and we do anticipate lower volatility today.
Our general post election scenarios are noted below. We fully expect a very volatile week as headlines fly and events unfold.
A positive market reaction to results likely leads to a sharp rally and VIX/implied volatility[IV] deflating to the 30 area. This IV crush fuels a move higher as it crushes put values, particularly in shorter term expirations. This leads to dealers buying back short hedges. We think its likely that single stock call options also become active which can further press the market higher. It seems unlikely that a complete & final result is achieved tonight. At best it could take several days for one for one of the candidates to concede, and so we do not see an extended, clean rally is initiated this week. 3500 is the strike above that we are watching as a “knee jerk” overhead target.
If the market is shaken by the outcome (or lack of outcome) we obviously expect a sharp drawdown in markets. This could cause an extended “draw down cycle” that lasts to of December. This is because under 3300 is where negative gamma initiates and where dealers may begin shorting. As markets shift lower this selling compounds due to the fact that large put strikes are positioned every 50 handles through 3000.
In summary – if we do rally off of the initial results we think that rally is limited until and unless one candidate concedes. The downside risk may be a bit unappreciated by markets as we think the chances of a large draw down are high due to the reflexive mechanics of dealer shorting.
For today we are watching 3300 as the main support area with resistance above at 3375.
Macro Note:
3500 resistance, 3400 Zero Gamma line into 11/3 expiration
| SIGNAL NAME | LATEST DATA | PREVIOUS | SPY | NDX | QQQ | ||
|---|---|---|---|---|---|---|---|
| Ref Price: | 3340 | 3299 | 334 | 11134 | 269 | ||
| VIX Ref: | 35.43 | 37.13 | |||||
| SG Gamma Index™: | -0.01 | -0.84 | -0.04 | -0.01 | -0.06 | ||
| Gamma Notional(MM): | $-75.00 | $-130.00 | $116.00 | $-2.00 | $-420.00 | ||
| SGI Imp. 1 Day Move: | .75%, | 25 pts | Range: 3315.0 | 3365.0 | ||||
| SGI Imp. 5 Day Move: | 3272 | 2.13% | Range: 3202.0 | 3342.0 | ||||
| Zero Gamma Level(ES Px): | 3357 | 3316 | — | 0 | |||
| Vol Trigger™(ES Px): | 3275 | 3265 | 332 | 11450 | 283 | ||
| SG Abs. Gamma Strike: | 3300 | 3250 | 320 | 10900 | 280 | ||
| Put Wall Support: | 3000 | 3250 | 300 | 10000 | 255 | ||
| Call Wall Strike: | 3500 | 3500 | 350 | 12000 | 300 | ||
| CP Gam Tilt: | 1.0 | 0.89 | 1.05 | 0.83 | 0.58 | ||
| Delta Neutral Px: | 3200 | ||||||
| Net Delta(MM): | $16,966.00 | $11,156.00 | $1,907.00 | $356.00 | $653.00 | ||
| 25D Risk Reversal | -0.14 | -0.13 | -0.12 | -0.1 | -0.1 | ||
| Top Absolute Gamma Strikes: SPX: [3400, 3300, 3200, 3000] SPY: [350, 340, 320, 310] QQQ: [280, 275, 260, 255] NDX:[12000, 11000, 10900, 10000] SPX Combo: [3296.0, 3246.0, 3286.0, 3270.0, 3303.0] NDX Combo: [11017.0, 10939.0, 11061.0, 11139.0] The Volatility Trigger has moved UP: 3275 from: 3265 The PutWall has moved to: 3000 from: 3250 SPX resistance is: 3400. Support is: 3300 .Reference ‘Intraday Support’ levels for support areas. The total gamma has moved has moved UP: $-76.00MM from: $-131.00MM Gamma is tilted towards Puts, may indicate puts are expensive Negative gamma is moderate favoring further swings in the market |
