Macro Theme:
Short Term SPX Resistance: 4,775
Short Term SPX Support: 4,700
SPX Risk Pivot Level: 4,700
Major SPX Range High/Resistance: 4,800
Major SPX Range Low/Support: 4,600
‣ 4,800 is our current max upside target, due to a Call Wall shift on 12/19. Call Walls in QQQ/IWM are at 409/210.*
‣ A downside break of 4,700 is our interim “risk off” level.*
‣ January OPEX is setting up to be a major event, with a risk that expiring large long call positions could pull markets lower mid to late January.*
‣ Implied volatility remains muted despite recent equity market weakness, with a surge in demand for long volatility (i.e put buying) is a potential driver of equity weakness.*
*updated 1/8
Founder’s Note:
ES Futures are flat to 4,790. Key SG levels for the SPX are:
Support: 4,745, 4,725, 4,700
Resistance: 4,773, 4,800 Call Wall
1 Day Implied Range: 0.74%
For QQQ:
Support: 403, 400
Resistance: 405, 409 Call Wall
IWM:
Support: 194, 190
Resistance: 200
There was little happening in major indexes yesterday, with traders eyeing tomorrows CPI as the next catalyst. SPX term structure reflects a mildly elevated IV for tomorrow, as you can see below (red box). While the level of IV tied to tomorrows CPI is higher, its well within the context of IV’s over the past ~60 days (shaded gray cone). We’d also note the other disturbance in the term structure tied to the FOMC on 2/1 (green box). Between these two events, the ATM IV’s are, however, rather low as evidenced by the term structure pinned towards the bottom of the shaded cone.
This informs us that traders are not really pricing in much risk at all from the CPI, because if they were there would be higher relative IV’s between Thursday’s CPI print & FOMC.
Between these events lurks the very large January OPEX, which continues to contain a massive amount of call delta (purple bars). We continue to believe that these positions could spark a selloff should the equity market rollover. A trigger is needed for that to start, with tomorrows CPI being a prime catalyst. We believe a large majority of these positions are deep in-the-money calls, which means they are “100 delta”. As such, there is not an equivalent hedge-buying response in the event of an upside move from the CPI.
As a primer on this idea, consider if you are short one call, vs 100 shares of stock. If the underlying stock goes higher, you do not have to do anything as your 100 shares fully covers the upside move. However, in a downside move, you may have to start selling your stock if your call starts to lose value. For example, if the stock decline causes the delta of the calls shifts to, say, 75, you’d have to sell 25 shares of your original 100.
Its the unwinding of single stock hedges tied to 1/19 OPEX that is the potential downside fuel. We continue to mark 4,700 as the risk-off level at which the unwinding of these positions may come into play.
To the upside 4,800 remains the major resistance area. This has been a large strike since just after Dec OPEX, with small relative call positions (orange) above that level. Should there be an equity rally over the next few sessions, we’d expect this area to be formidable resistance.
SpotGamma Proprietary Levels SPX SPY NDX QQQ RUT IWM
Reference Price: $4756 $473 $16678 $405 $1968 $194
SpotGamma Implied 1-Day Move: 0.74% 0.74%
SpotGamma Implied 5-Day Move: 2.06%
SpotGamma Volatility Trigger™: $4745 $473 $16440 $403 $1940 $194
Absolute Gamma Strike: $4800 $475 $16650 $399 $2000 $195
SpotGamma Call Wall: $4800 $480 $16650 $409 $2005 $200
SpotGamma Put Wall: $4600 $465 $16000 $402 $1800 $185
Additional Key Levels SPX SPY NDX QQQ RUT IWM
Zero Gamma Level: $4729 $473 $16022 $402 $1963 $196
Gamma Tilt: 1.26 0.998 1.892 1.21 1.006 0.890
SpotGamma Gamma Index™: 1.564 -0.002 0.116 0.115 0.000 -0.02
Gamma Notional (MM): $364.66M $34.169M $13.601M $500.452M $960.798K ‑$196.171M
25 Delta Risk Reversal: -0.023 -0.023 -0.026 -0.027 -0.013 -0.014
Call Volume: 467.323K 1.647M 15.259K 1.111M 20.289K 406.928K
Put Volume: 918.291K 1.735M 15.677K 1.21M 36.711K 510.958K
Call Open Interest: 6.353M 6.863M 55.125K 5.045M 224.617K 4.613M
Put Open Interest: 12.368M 13.386M 68.981K 8.154M 401.034K 7.957M
Key Support & Resistance Strikes
SPX Levels: [4800, 4750, 5000, 4700]
SPY Levels: [475, 470, 474, 473]
NDX Levels: [16650, 17000, 16000, 16500]
QQQ Levels: [399, 404, 409, 402]
SPX Combos: [(4952,91.86), (4923,83.06), (4899,98.68), (4875,89.57), (4871,79.06), (4861,73.09), (4852,96.48), (4842,78.79), (4837,73.16), (4828,87.06), (4823,94.78), (4818,95.06), (4814,76.43), (4809,93.21), (4804,76.58), (4799,99.71), (4795,89.28), (4790,90.48), (4785,87.67), (4780,97.20), (4776,98.73), (4771,93.53), (4761,98.51), (4756,84.34), (4752,98.03), (4728,83.55), (4718,87.28), (4709,76.82), (4699,74.66), (4690,84.70), (4680,72.65), (4666,79.44), (4652,83.19), (4619,78.18), (4600,93.43), (4552,75.71)]
SPY Combos: [477.48, 487.43, 482.22, 474.64]
NDX Combos: [16645, 16812, 16845, 16245]
QQQ Combos: [405.69, 406.91, 409.75, 410.56]
SPX Gamma Model
$3,830
$4,330
$4,830
$5,708
Strike
-$1.6B
-$860M
-$110M
$1.2B
Gamma Notional
Put Wall: 4600
Call Wall: 4800
Abs Gamma: 4800
Vol Trigger: 4745
Last Price: 4756
Strike: $4,947
Next Expiration: $978,353,535
Current: $997,511,268
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