Futures are up slightly from last nights close to 4475, but well off of overnight lows of 4429. The move lower has increased the negative gamma position significantly, which forecasts a great deal of volatility for todays session (1.76% open/close max move). We see resistance at 4500 & 4550. Support lies at 4450 and 4379.
The plot below shows our gamma readings since Jan ’20, and as you can see todays level of -2 on the SG Index is “peak volatility”. What we’ve found interesting is that a shift deeper into negative gamma (left on the x axis) shows some reduction in volatility – like the associated S&P price moves are somewhat capped. Our theory here is that dealers are likely to own tail risk, and that tail risk begins to pay off on the most extreme moves which in turn may reduce the need to delta hedge. Negative gamma readings that are this large may be more above hedging vega than delta.
Yesterday certainly felt like some forced liquidations, which fed into large negative gamma and an accelerated drop. 4500 is the major gamma strike currently on the board, but all strikes are very put-dominated. As such we think todays flows will be hyper sensitive to shifts in implied volatility (vanna) and decay (charm). We show >=33% of total S&P + QQQ gamma expiring today, which will lead to put covering. We therefore anticipate some relief rally today (or an attempt at one).
Its likely that a lot of put flow is rolled out due to the FOMC (+ volatility & other general risks), and still feel that a meaningful, multi-session rally cannot take place until after Wednesdays Fed. In other words respect the magnitude of possible rallies today, but we advise not to consider them stable.
Finally – we turn to the single stock expiration. That >$100bn of positive net deltas (chart here) has now been wiped out. On net we now see –$2bn, which is the combination of a drop in call delta and a big increase in put deltas. This delta shift is due both to a position change (selling calls + buying puts), but also a function of a shift lower in stock prices. One could now argue that expiration is going to remove puts from both Index/ETF & single stocks – something we generally consider bullish for next week.
Our bottom line is this: We think the clearing of puts is supportive of markets, and may spark a short cover rally. However, because of the FOMC we do not think implied volatility will be offered in large supply as traders hedge the event risk. While we do give an edge to “pre-Fed” S&P lows being in, but anticipate large directional swings into Wednesday.
This is very risky, fragile market with lots of large flows that can shift price rapidly.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4454 | 4438 | 447 | 14685 | 361 |
| SpotGamma Imp. 1 Day Move: | 1.76%, | Est 1 StdDev Open to Close Range (±pts): 78.0 | |||
| SpotGamma Imp. 5 Day Move: | 4.02% | 4646 (Monday Ref Px) | Range: 4460.0 | 4834.0 | ||
| SpotGamma Gamma Index™: | -2.11 | -1.61 | -0.50 | -0.07 | -0.20 |
| Volatility Trigger™: | 4625 | 4630 | 465 | 15820 | 398 |
| SpotGamma Absolute Gamma Strike: | 4500 | 4600 | 450 | 15000 | 360 |
| Gamma Notional(MM): | $-1,263 | $-1,188 | $-1,948 | $-9 | $-863 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4624 | 4678 | 0 | 0 | 0 |
| Put Wall Support: | 4450 | 4450 | 450 | 15000 | 355 |
| Call Wall Strike: | 4700 | 4700 | 480 | 15100 | 400 |
| CP Gam Tilt: | 0.57 | 0.45 | 0.5 | 0.42 | 0.49 |
| Delta Neutral Px: | 4601 | ||||
| Net Delta(MM): | $1,554,858 | $1,554,781 | $194,291 | $41,739 | $106,554 |
| 25D Risk Reversal | -0.09 | -0.07 | -0.09 | -0.1 | -0.1 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4600, 4550, 4500, 4450] |
| SPY: [455, 450, 445, 440] |
| QQQ: [365, 360, 355, 350] |
| NDX:[15300, 15000, 14750, 14700] |
| SPX Combo (strike, %ile): [4428.0, 4379.0, 4477.0, 4526.0, 4401.0] |
| SPY Combo: [443.62, 438.71, 448.54, 453.45, 440.94] |
| NDX Combo: [14436.0, 14642.0, 15054.0, 14848.0, 14318.0] |
