Futures are flat to last nights close, 3920. The two largest SG levels stand at 3900 & 3925 and we anticipate the SPX closing in that range today. Notional gamma levels have reduced quite a bit, with QQQ showing a solid negative gamma position. The 4k Call Wall has contracted to 3950 in SPX, and holds 395 in SPY. We read the Call Wall shifting down as a bearish indicator.
This reads like a great place for volatility (i.e. a large move up or down) to expand from, as gamma is low and the large trading strikes have consolidated to 3900-3925. Additionally we have a large single stock expiration would could add some flows/momentum. Following today, with gamma being sharply reduced we do not have the same support for those big mean reverting swings as seen the last several days.
The market seems to be increasing the price of downside risk, as you can see in the chart below. These are the implied volatility (IV) levels for 25 delta options with each dot representing a different expiration. The fact that put IV is increasing is signaling that trading are paying up a bit for downside hedges. We find this interesting given the market has held such a tight range this week, just 1% under all time highs.
This seems to contrast against “sentiment” which indicates a crowded bullish view:
Regardless of stance, we do not see options flows fueling a selloff unless we break the Volatility Trigger level which sits down near 3850. That being said, we hold 3900 as critical support for three reasons:
- SPY’s Vol Trigger level is 390
- QQQ is holding just 1pt above its Vol Trigger
- We read a downside gap in gamma positions (ie no dealer support) from ~3888 – 3850
As a reminder, the bulk of SPX options expire at 9:30AM EST, so we advise those trading futures near the open to use caution as strange jumps can occur.
Macro Note:
3900-3925 into Feb OPEX
| Signal Name | Latest Data | Previous | SPY | NDX | QQQ | ||
|---|---|---|---|---|---|---|---|
| Ref Price: | 3906 | 3912 | 390 | 13618 | 332 | ||
| VIX Ref: | 22.49 | 22.49 | |||||
| SG Gamma Index™: | 0.87 | 1.12 | 0.14 | 0.02 | -0.04 | ||
| Gamma Notional(MM): | $148 | $190 | $486 | $2 | $-303 | ||
| SGI Imp. 1 Day Move: | 0.85%, | 33.0 pts | Range: 3873.0 | 3939.0 | ||||
| SGI Imp. 5 Day Move: | 3899 | 2.06% | Range: 3819.0 | 3979.0 | ||||
| Zero Gamma Level(ES Px): | 3868 | 3873 | — | 0 | |||
| Vol Trigger™(ES Px): | 3840 | 3845 | 390 | 13640 | 331 | ||
| SG Abs. Gamma Strike: | 3900 | 3925 | 390 | 13500 | 330 | ||
| Put Wall Support: | 3700 | 3700 | 380 | 13500 | 320 | ||
| Call Wall Strike: | 3950 | 4000 | 395 | 13750 | 335 | ||
| CP Gam Tilt: | 1.27 | 1.12 | 1.13 | 1.13 | 0.78 | ||
| Delta Neutral Px: | 3743 | ||||||
| Net Delta(MM): | $1,345,441 | $1,325,699 | $207,537 | $44,344 | $77,698 | ||
| 25D Risk Reversal | -0.07 | -0.06 | -0.08 | -0.03 | -0.09 | ||
| Top Absolute Gamma Strikes: SPX: [3950, 3925, 3900, 3800] SPY: [395, 390, 389, 385] QQQ: [335, 330, 325, 320] NDX:[13700, 13650, 13500, 12800] SPX Combo: [3941.0, 3992.0, 3968.0, 3918.0, 3937.0] NDX Combo: [13729.0, 13934.0, 13484.0] The Volatility Trigger has moved DOWN: 3840 from: 3845 The Call Wall has moved to: 3950 from: 4000 SPX resistance is: 3950. Support is: 3900 .Reference ‘Intraday Support’ levels for support areas. The total gamma has moved DOWN: $148MM from: $189.00MM 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% |
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