Futures are lower and currently testing the large 3800 gamma strike. Our critical risk lines jumped to 3820 overnight which is a function of put contracts added to the 3800 and 3850 strikes. Therefore 3800 is the critical “risk off” line in the sand. That being said we would be surprised to markets break materially below 3800 until the 2pm FOMC event today.
Below is our composite S&P 500 gamma snapshot. You can see that under 3838 there is little in positive gamma with light negative gamma strikes positioned below. The 3700 is where most put positions sit and we think there is something of an “air pocket” down into that area. The increased risk of course is that any new put positions foists short selling onto dealers for delta hedging purposes.
All that said, much tied to this Fed meeting is the volatility lever. Depending on how markets digest “Fed speak” there is room for either a quick recovery back to the 3875 area, or we break the zero gamma level and implied volatility expands. This event invokes “vanna” as implied volatility rises(falls) dealers have to short(buy) futures. This should be an interesting day.
We sent out a fairly extensive note detailing our concerns for the markets yesterday which summarizes much of what we’ve been discussing in our member notes. You can read that here.
Macro Note:
Feb Range 3750-3850
| Signal Name | Latest Data | Previous | SPY | NDX | QQQ | ||
|---|---|---|---|---|---|---|---|
| Ref Price: | 3839 | 3851 | 383 | 13560 | 328 | ||
| VIX Ref: | 23.02 | 23.02 | |||||
| SG Gamma Index™: | 0.57 | 0.86 | 0.02 | 0.02 | -0.01 | ||
| Gamma Notional(MM): | $51 | $255 | $151 | $3 | $-95 | ||
| SGI Imp. 1 Day Move: | 0.92%, | 35.0 pts | Range: 3804.0 | 3874.0 | ||||
| SGI Imp. 5 Day Move: | 3849 | 2.0% | Range: 3773.0 | 3927.0 | ||||
| Zero Gamma Level(ES Px): | 3829 | 3784 | — | 0 | |||
| Vol Trigger™(ES Px): | 3820 | 3785 | 384 | 12675 | 326 | ||
| SG Abs. Gamma Strike: | 3800 | 3800 | 385 | 12800 | 320 | ||
| Put Wall Support: | 3500 | 3550 | 380 | 11500 | 300 | ||
| Call Wall Strike: | 3900 | 3900 | 385 | 12825 | 330 | ||
| CP Gam Tilt: | 1.26 | 1.24 | 1.05 | 1.43 | 0.89 | ||
| Delta Neutral Px: | 3651 | ||||||
| Net Delta(MM): | $1,093,493 | $1,073,797 | $171,320 | $36,894 | $66,373 | ||
| 25D Risk Reversal | -0.08 | -0.09 | -0.07 | -0.04 | -0.04 | ||
| Top Absolute Gamma Strikes: SPX: [3900, 3850, 3800, 3700] SPY: [390, 385, 383, 380] QQQ: [330, 325, 320, 315] NDX:[13500, 12825, 12800, 12600] SPX Combo: [3888.0, 3865.0, 3938.0, 3838.0, 3857.0] NDX Combo: [13615.0, 13832.0, 13914.0] The Volatility Trigger has moved UP: 3820 from: 3785 The PutWall has moved to: 3500 from: 3550 SPX resistance is: 3900. Support is: 3800 .Reference ‘Intraday Support’ levels for support areas. The total gamma has moved DOWN: $51MM from: $255.00MM Gamma is tilted towards Puts, may indicate puts are expensive Positive gamma is moderate which should lead to smaller market moves. Average Range on day is 1.5% |
