Futures have recovered a bit to 3927 after a fairly quiet overnight session. Today we estimate roughly 25% of S&P gamma rolling off, with 40% of QQQ and 50% of single stock. The bulk of SPX gamma expires at 9:30AM EST, but note that position is heavily outsized by SPY/QQQ which expires at the 4pm EST close.
We remind those of you trading near the open that ES prices can be quite jumpy near the cash open.
Today we see S&P resistance at 395/3950 which builds sharply on a move to 400. We look for markets to hold 3900 and maintain a “pin” to the 3900-3950 area. However, a break of 390/3900 must be respected and we advise caution on sharp break of that level. From a QQQ perspective we see any rally stalling on a move through 315, with 320 being major resistance. We see initial support at 310, and anticipate much higher relative volatility in tech.
Currently 3900 is the largest SPX strike, and 395 is the largest SPY strike. With much of the SPX position and 3900 pin fuel rolling off at 9:30 we would look for 395/3950 to become the larger magnet into the close.
As noted above, the S&P must hold the 390/3900 critical flip line, even though we see little in the way of S&P put positions (and therefore negative S&P500 gamma) below. Any move lower would invoke the downside “volatility potential” contained in QQQ.
While these QQQ puts expiring today provide downside fuel, they will also be very sensitive to implied volatility and decay, and so if there is a bounce at the open it could setup a decent QQQ rally into the 315-320 area as dealers quickly cover their corresponding short hedges.
You can see in the chart below how the gamma position reduces sharply >315 (green) but see consistent large strikes (ie fuel) to the downside (red).
Into Monday these tech puts could provide a decent dealer short hedge (and therefore market tailwind) and reduce QQQ volatility next week. The lower QQQ closes the larger the dealer short will be that is tied to todays close. Therefore a lower close provides more “bounce fuel” into the start of next week.
Counter to that view in tech we anticipate an uptick in S&P volatility and a shift away from 3900 next week. We also look for higher single stock volatility due to the large amount of single stock options expiring today.
Macro Note:
3800 support 4000 resistance into March OPEX
| Signal Name | Latest Data | Previous | SPY | NDX | QQQ | ||
|---|---|---|---|---|---|---|---|
| Ref Price: | 3903 | 3911 | 391 | 12720 | 312 | ||
| VIX Ref: | 21.58 | 21.58 | |||||
| SG Gamma Index™: | -0.04 | 1.26 | 0.04 | -0.06 | -0.18 | ||
| Gamma Notional(MM): | $-406 | $94 | $62 | $-8 | $-956 | ||
| SGI Imp. 1 Day Move: | 1.28%, | 50.0 pts | Range: 3853.0 | 3953.0 | ||||
| SGI Imp. 5 Day Move: | 3927 | 2.06% | Range: 3846.0 | 4008.0 | ||||
| Zero Gamma Level(ES Px): | 3923 | 3872 | — | 0 | |||
| Vol Trigger™(ES Px): | 3930 | 3920 | 390 | 12900 | 317 | ||
| SG Abs. Gamma Strike: | 3900 | 3950 | 395 | 12800 | 310 | ||
| Put Wall Support: | 3900 | 3900 | 380 | 12800 | 310 | ||
| Call Wall Strike: | 3950 | 4000 | 395 | 13000 | 330 | ||
| CP Gam Tilt: | 0.99 | 1.04 | 1.02 | 0.67 | 0.52 | ||
| Delta Neutral Px: | 3797 | ||||||
| Net Delta(MM): | $1,016,674 | $1,471,439 | $160,415 | $38,429 | $85,575 | ||
| 25D Risk Reversal | -0.05 | -0.05 | -0.06 | -0.06 | -0.07 | ||
| Top Absolute Gamma Strikes: SPX: [3950, 3925, 3900, 3895] SPY: [400, 395, 393, 390] QQQ: [315, 310, 305, 300] NDX:[12900, 12800, 12750, 12500] SPX Combo: [3939.0, 3888.0, 3912.0, 3990.0, 3900.0] NDX Combo: [12657.0, 12453.0, 12759.0, 12861.0, 12784.0] The Volatility Trigger has moved UP: 3930 from: 3920 The Call Wall has moved to: 3950 from: 4000 SPX is below the Volatility Trigger™. The 3923.0 level is first level of resistance and is critical as its the negative gamma threshold. The trigger level of: 3930 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: $-406MM from: $93.00MM Gamma is tilted towards Puts, may indicate puts are expensive Negative gamma is moderate favoring further swings in the market |
