Macro Theme:

Key dates ahead:

 

Founder’s Note:

Merry Christmas 🎄 & Happy Hanukkah 🕎

Futures are up 15bps into today’s shortened session.

Resistance: 6,000, 6,050

Support: 5,950, 5,900

We remain risk on until/unless the SPX is >=5,950. Below 5,950 we now flip to a short stance.

The SPX is now just ~30bps from the big 6,000 strike, which holds the most

absolute gamma

on the board. The upcoming holiday sessions are likely to tip the price scales into that level, due to the decay of put positions from last weeks decline.

We remain of the opinion that if we can close above >=6,000 today, that odds of visiting the 6,055 JPM pin into 12/31 increases sharply. If we fail to cross 6,000, it becomes something of a race against time.

In an attempt to illustrate this, we plotted the estimated gamma of the 12/31, 6,055 strike over the next 7 days. Disclaimer: This imagine is just a quick illustration of a single strike, we’ve not properly calibrated many aspects of this pricing model.

As you can see, if we are above 6k into 12/31 the gamma increases sharply into the 6,055 strike. However, if the SPX is <6,000 into Friday, the gamma of that 6,055 strike all but disappears.

Adding to the intrigue, TRACE shows that there is a small pocket of negative gamma strikes (non 0DTE, red box) at 6,000, which suggests SPX could get a small boost through that area. Those negative dealer strikes are within the context of a map that is increasingly positive in gamma >=6,000 (darker purple), which suggests market support (via positive gamma) increases into 6,050 just as gamma increases in the map, above.

On the bearish side of things, there is now a clear indication that SPX could break sharply lower if we breach 5,950 to the downside. We see this via negative gamma (red) in the TRACE map.