Futures have shifted up a bit to 4165 as we enter todays large OPEX. We estimate just over 25% of SPX gamma is set to expire at the open, with SPX & single stock options expiring on the close. We do not anticipate much volatility today, with 415 being the largest gamma strike in SPY options. Next week we do look for a large expansion in volatility, with the critical gamma flip line forming just under 4100.
This has been a rather strange OPEX cycle, with a consistent almost mechanical bid pushing markets higher. We’ve not seen the Call Wall “breached” this many times before, but there are other aberrations that we’ve mentioned in previous notes – like net put sales. We’ve got some theories on this we are posting in a longer form piece.
Because implied volatility has now compressed (ie VIX at new lows) there is now more potential for “long term” volatility. Recall how as of late any sharp, violent drop in markets was bought so quickly (see chart below). These bursts lower coincided with record VIX spikes, but a reflective snap-back bid would bring a market recovery of equal force as the VIX (i.e. implied volatility) reversed.
When implied volatility is very high, its very sensitive to market moves and also signaling that markets are expecting more large moves ahead. As soon as markets would pause or catch a support level, that implied volatility would quickly reverse lower. We often think of this analogy that if a shark stops swimming, it sinks ( partially true!). If the market stops dropping then Implied volatility sinks.
With this, as we often talk about, lower implied volatility (ie lower VIX) signals market makers have to buy back short hedges which fuels rallies.
This current level of lower implied volatility now gives the market more downside firepower. Starting with a lower implied volatility “slows down” that responsive “snap-back” buying mechanism. Additionally, gamma is higher when IV is lower so gamma flips may have more juice.
Model Overview:
4150 – 4100 range into 4/16 OPEX. We look for tight trading ranges and a pinning of the large 4150 or 4100 gamma lines.
| Signal Name | Latest Data | Previous | SPY | NDX | QQQ | ||
|---|---|---|---|---|---|---|---|
| Ref Price: | 4157 | 4161 | 415 | 13976 | 341 | ||
| VIX Ref: | 16.57 | 16.57 | |||||
| SG Gamma Index™: | -0.06 | 1.05 | 0.21 | -0.15 | 0.02 | ||
| Gamma Notional(MM): | $364 | $768 | $707 | $4 | $55 | ||
| SGI Imp. 1 Day Move: | 0.96%, | 40.0 pts | Range: 4117.0 | 4197.0 | ||||
| SGI Imp. 5 Day Move: | 4106 | 1.38% | Range: 4050.0 | 4163.0 | ||||
| Zero Gamma Level(ES Px): | 4115 | 4058 | — | 0 | |||
| Vol Trigger™(ES Px): | 4125 | 3995 | 414 | 13800 | 336 | ||
| SG Abs. Gamma Strike: | 4125 | 4100 | 415 | 13800 | 340 | ||
| Put Wall Support: | 4125 | 4080 | 408 | 13800 | 290 | ||
| Call Wall Strike: | 4200 | 4150 | 415 | 14000 | 340 | ||
| CP Gam Tilt: | 0.98 | 1.69 | 1.22 | 1.59 | 1.05 | ||
| Delta Neutral Px: | 3894 | ||||||
| Net Delta(MM): | $1,343,622 | $1,339,208 | $188,713 | $39,593 | $83,101 | ||
| 25D Risk Reversal | 0.01 | -0.05 | -0.04 | 0.03 | -0.05 | ||
| Top Absolute Gamma Strikes: SPX: [4150, 4125, 4100, 4000] SPY: [417, 415, 414, 410] QQQ: [340, 337, 335, 330] NDX:[14000, 13800, 13790, 12850] SPX Combo: [4156.0, 4152.0, 4111.0, 4185.0, 4086.0] NDX Combo: [13977.0, 13907.0, 14117.0, 14327.0, 13991.0] The Volatility Trigger has moved UP: 4125 from: 3995 The PutWall has moved to: 4125 from: 4080 The Call Wall has moved to: 4200 from: 4150 SPX resistance is: 4200. Support is: 4125 .Reference ‘Intraday Support’ levels for support areas. The total gamma has moved DOWN: $364MM from: $768.00MM 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% |
