There was a solid build in SPX/SPY gamma overnight with futures at 3490. They had an overnight high around 3509 before pulling back some. The tricky spot here for our SPX forecast is that the Call Wall did not shift higher and we dont see any major options levels above here in SPX or SPY. Single stocks of course have large levels of negative gamma, so there is a dichotomy of model expectations: large single stock volatility but low Index vol. Since the Call Wall stuck at 3500 we’d anticipate the market closing <= that level.
The key levels for today are looking like a large Combo bar at 3511 with 3500 figuring in as the key line. Below we see a small Combo support line at 3487 and a larger level at 3462. With that large positive gamma we look for mean reverting price action.
We received a few great comments about “VIX up Market up” including elections and deteriorating liquidity which leads to wider bid/ask options spreads. I’ve been mulling over an idea that the higher VIX could somehow be linked to dealer call inventory. This theory is that with massive call buying in single stocks dealers may have maxed out exposure and are increasing options prices. These higher call prices in single stocks could then be reflected in SPX, which could support VIX (VIX price is based from SPX options). The VIX implications are something I have to work on over the weekend, but its food for thought. |
