Futures have pushed higher into 3925. The S&P now holds a fairly robust level of gamma ~$1.5bn which is ~70% SPY. As mentioned in last nights note the data suggested the “center” of options neutrality shifting a bit higher towards 3925, but along with that we read dealer mean reverting flows as larger and anticipate trading ranges tightening.
Through this lens of “dominant SPY gamma” we see strong resistance at the 395 SPY Call Wall (SPX CW = 4000). Along with this we highlight large Combo (SPX+SPX blended gamma) strikes at 3918, 3946 and 3969.
The SPY vanna model below depicts this larger positive delta exposure for dealers as the S&P prices increase. As such we believe dealers will add short futures to offset this increased long exposure.
For several weeks we’ve noted relative safety for a bullish stance with SPX >3900 due to volatility suppressing dealer flows. While dealers sell into rallies they also provide support when markets decline, which is what condenses the markets trading range. In turn this should produce lower realized volatility which feeds back into lower implied volatility (i.e. lower VIX). We view lower implied volatility as providing a tailwind for equity prices.
Those looking for larger trading swings may want to focus on IWM/RUT and QQQ/NDX as those indicies hold negative gamma profiles which infers more relative volatility vs SPX.
Macro Note:
3800 support 4000 resistance into March OPEX
| Signal Name | Latest Data | Previous | SPY | NDX | QQQ | ||
|---|---|---|---|---|---|---|---|
| Ref Price: | 3913 | 3900 | 391 | 12838 | 310 | ||
| VIX Ref: | 22.56 | 22.56 | |||||
| SG Gamma Index™: | 0.73 | 0.45 | 0.14 | -0.01 | -0.14 | ||
| Gamma Notional(MM): | $309 | $262 | $1,108 | $-2 | $-853 | ||
| SGI Imp. 1 Day Move: | 0.97%, | 38.0 pts | Range: 3875.0 | 3951.0 | ||||
| SGI Imp. 5 Day Move: | 3831 | 3.11% | Range: 3712.0 | 3950.0 | ||||
| Zero Gamma Level(ES Px): | 3845 | 3861 | — | 0 | |||
| Vol Trigger™(ES Px): | 3850 | 3860 | 384 | 13050 | 315 | ||
| SG Abs. Gamma Strike: | 3900 | 3900 | 390 | 12800 | 310 | ||
| Put Wall Support: | 3700 | 3700 | 380 | 12500 | 300 | ||
| Call Wall Strike: | 4000 | 4000 | 395 | 13700 | 335 | ||
| CP Gam Tilt: | 1.24 | 1.16 | 1.4 | 0.9 | 0.53 | ||
| Delta Neutral Px: | 3722 | ||||||
| Net Delta(MM): | $1,344,265 | $1,319,170 | $204,305 | $40,635 | $88,691 | ||
| 25D Risk Reversal | -0.07 | -0.09 | -0.08 | -0.09 | -0.09 | ||
| Top Absolute Gamma Strikes: SPX: [4000, 3900, 3850, 3800] SPY: [395, 390, 385, 380] QQQ: [315, 310, 300, 290] NDX:[13000, 12900, 12800, 12500] SPX Combo: [4020.0, 3969.0, 3997.0, 3918.0, 3973.0] NDX Combo: [12831.0, 12625.0, 12792.0] The Volatility Trigger has moved DOWN: 3850 from: 3860 SPX resistance is: 4000. Support is: 3900 .Reference ‘Intraday Support’ levels for support areas. The total gamma has moved has moved UP: $309MM from: $261.00MM 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% |
