Informe Option Levels

Futures are at 3900, down from overnight highs of 3930. 3900 is a key pivot level, with resistance showing at 3920 (SPY 390), then 3950. Support shows at 3853.

We’re looking for a fairly quiet day in markets, but with positive drift. The drift comes from our view that markets seem to have positive performance after OPEX, but also that tomorrow AM is VIX expiration. Several times this year the day before VIX expiration has lead to sneaky market rallies (see here). We therefore are flagging this previous market behavior, but note there are two caveats here:

1. The put complex in the VIX doesn’t appear to be as large as it’s been in previous expirations. However, there are still a few strikes with 100k put interest (23-20 strikes, chart below) which may serve as market rally-fuel (VIX down/market up).
2. VIX expiration lands the same day as FOMC, which complicates the volatility landscape.

Further to that “positive drift” is the idea that today could spark some “same day expiration” options sellers which could stabilize things today. Below is the open interest for todays expiration (its very light), with todays IV skew (blue) vs tomorrows IV skew (dashed blue). As you can see tomorrow is pricing in much larger moves which is obviously tied to the Fed. Our point here is that between VIX Exp tomorrow and todays skew it seems like a decent rally setup could catch some offsides today. Further, we are pricing in a max move of 1.26% (SG implied move), so some vol is possible.

Regardless of the short term games that play out today, our view out of tomorrows FOMC remains in line with that of yesterday (note here). We are on watch for a large directional move that sets up from FOMC into the end of the month.