Futures are up nearly 2% to 3750. After the large expiration our volatility estimate comes down to 1% (open/close). We note resistance at 3800 and support at 3700.
With June monthly OPEX clearing the deck, markets will start searching for some new levels. We have been calling for a post-OPEX rally which appears to be underway. While we mark 3800 as resistance for this session, we see little overall resistance until the 4000 area as options positions overhead have been greatly reduced. This, in our view, means less resistance for a short cover rally.
To the downside there is nothing significant now about the 3700 strike as our Put Wall shifts to the 3600 area, where we see major support. Recall, too, that the short leg (dealer long) of the 6/30 JPM spread’s is at 3620 (further support).
You can see in the updated gamma curves below how the gamma profile now troughs <3600 (right chart) vs near 3700 (left chart). This syncs with the idea that puts have been rolled “down and out” which shifts our market lower bound to lower strikes.
With each options expiration we get a systematic rolling of put hedges to lower strikes, and with that an “opening” for the S&P to ultimately trade lower. While we think the market is due for a rally here, this chart is something to watch into July as we think the market ultimately trades lower after June quarterly OPEX.
A few interesting notes here regarding Fridays monthly June OPEX, as seen here from our OCC data. As you can see, the options flow was dominated by index put trading (red lines). The bottom two charts depict closing data, both buying to cover (3rd chart) and selling to cover (4th chart). What catches us a bit by surprise is the size of the put buying to cover (aka short puts closing). This is substantial flow suggesting traders went into last week fairly short index puts, which syncs with our RiskReversal skew readings at highs.
There is also some large demand to sell to open new put positions in both index and equity puts (yellow line, 2nd chart). Selling to open is only about 1/4 the size of put buying (top chart), but suggests this dynamic of “contained IV /VIX” remains in play. We think that while traders may be selling some puts, its likely against offsetting long puts, short equities/futures and/or long VIX positions.
Last thing of note here is equity call buying (blue line, top chart), which is anemic. Our view has been that we need call buying to spark a sustained rally, and until we get that then rallies should be categorized as short covering and subject to fast reversals.
SpotGamma Proprietary SPX Levels
Latest Data
SPX Previous
SPY
NDX
QQQ
Ref Price:
3673
3673
365
11265
274
SpotGamma Imp. 1 Day Move:
Est 1 StdDev Open to Close Range
