Futures are down from the close to 3750 but off of 3725 lows. SPX opens again in negative gamma territory with the flip point around 3785. Therefore we anticipate another high volatility day. 3800 is far and away the largest gamma strike on the board, and so selling needs to overwhelm the pull of that strike. Any kind of retreat in implied volatility (VIX) likely leads to a quick rally back to that large 3800 level. The real negative gamma kicker appears closer to 3700 as that is where larger net put positions appear.
The chart below gives some idea as to changes in dealer exposure over the next several days. As the market declines dealers may need to sell futures to hedge as the delta notional rises due to put gamma and the estimated increase implied volatility. However to the upside the exposure reduces due to a reduction in call open interest over the next few days. This is implied by the red line (est exposure in 5 days) vs the black line (todays exposure). Said another way, there is a downside vacuum <3700 and declining dealer exposure >3750.
Finally we note the Gamma Tilt readings have been trending more bearish indicating markets are shifting a bit more towards puts vs calls.
With little clarity about the state of brokerages and a negative gamma setup, we warrant caution again today. There may be some weakness into the close as traders trim risk into the weekend, and we will be watching the VIX closely, as if VIX rises it signals downside hedging.
Macro Note:
Feb Range 3750-3850
| Signal Name | Latest Data | Previous | SPY | NDX | QQQ | ||
|---|---|---|---|---|---|---|---|
| Ref Price: | 3728 | 3773 | 373 | 12986 | 321 | ||
| VIX Ref: | 30.21 | 30.21 | |||||
| SG Gamma Index™: | -0.02 | -0.28 | -0.11 | 0.01 | -0.06 | ||
| Gamma Notional(MM): | $-439 | $-165 | $-1,005 | $1 | $-322 | ||
| SGI Imp. 1 Day Move: | 1.71%, | 64.0 pts | Range: 3664.0 | 3792.0 | ||||
| SGI Imp. 5 Day Move: | 3849 | 2.0% | Range: 3773.0 | 3927.0 | ||||
| Zero Gamma Level(ES Px): | 3804 | 3792 | — | 0 | |||
| Vol Trigger™(ES Px): | 3785 | 3770 | 379 | 12675 | 324 | ||
| SG Abs. Gamma Strike: | 3800 | 3800 | 380 | 12800 | 315 | ||
| Put Wall Support: | 3600 | 3600 | 370 | 11500 | 300 | ||
| Call Wall Strike: | 3900 | 3900 | 385 | 12825 | 330 | ||
| CP Gam Tilt: | 0.99 | 0.87 | 0.69 | 1.15 | 0.72 | ||
| Delta Neutral Px: | 3654 | ||||||
| Net Delta(MM): | $1,101,375 | $1,119,149 | $178,839 | $36,230 | $71,659 | ||
| 25D Risk Reversal | -0.12 | -0.13 | -0.11 | -0.11 | -0.11 | ||
| Top Absolute Gamma Strikes: SPX: [3850, 3800, 3750, 3700] SPY: [385, 380, 375, 370] QQQ: [325, 320, 315, 310] NDX:[12825, 12800, 12600, 12500] SPX Combo: [3800.0, 3822.0, 3841.0, 3774.0, 3650.0] NDX Combo: [13360.0] The Volatility Trigger has moved UP: 3785 from: 3770 SPX is below the Volatility Trigger™. The 3804.0 level is first level of resistance and is critical as its the negative gamma threshold. The trigger level of: 3785 will act as overhead resistance. Watching VIX is key, if volatility comes in dealers will start to buy back shares as their short puts lose value. This could start a rally. The total gamma has moved DOWN: $-439MM from: $-165.00MM Gamma is tilted towards Puts, may indicate puts are expensive Negative gamma is moderate favoring further swings in the market |
