| Futures were very active overnight touching 2920 at the lows and recovered some to the 2970 area. Our Gamma Index shifts lower with all the put action from Friday. Looking at the open interest change we saw a rather large strip of puts closed >=3040. Quite interesting when you consider the SPX closed at 3041. We talk often about watching VIX and the effect of puts being closed/rolled. The data suggests this happened Friday and may have helped things rally. We essentially exchanged high delta >3040 puts for lower delta <3000 puts indicating dealers had to buy back short hedges. I think this “rehedging” can often lead to air gaps underneath and that may well be what we are seeing today. In other words that rally from 3000->3040 wasn’t “real”. To that point 3000 remains the key level, and is now the Put Wall which suggests it has the largest area of put gamma (see the “Put Wall” link in the glossary below for a full explanation of this level). We are therefore set to open with plenty of negative gamma energy to push things around. We are anticipating the “large swing” type of action we saw in Fridays session. Because 3000 is the Put Wall I am looking at this level as a “pivot”(and not resistance) as it seems like many of our levels have concentrated at 3050. I mark 3050 as heavier resistance and key for a sustained move higher. If markets can recover this level it may push more put covering and incent dealers to buy single stock equities due to negative gamma. Forecasting the downside is trickier. For June OPEX we have 85k puts at 2900, and 125k at 2800. These don’t have a whole lot of pull right now as they expire shortly and are relatively far out of the money. However if the market ball starts rolling downhill these puts could get some teeth. I would therefore mark 2950 as the gateway to a sharp move lower as our model picks up this level as a large Combo Strike and may be where 2900 puts gamma grabs hold. Our data from an equity perspective shows that net calls have been added through this drawdown, and we also picked up put positions. So while many of these popular retail names were hit very hard Thursday/Friday it didnt stop call buyers. This tells us that equity negative gamma is now higher which will add more fuel to directional moves. Finally, if we zoom out to look at this week (with the VIX expiration Wed, and large OPEX Fri) my current idea is that we are going to get a mean reversion from whatever move occurs in the next few days. If we drop sharply then we will have a lot of dealer short deltas to unwind, and a rally would leave us with long dealer deltas to close. The third option of course if for markets to stick to currently levels, in which case we should see pretty rapid decay of all these out of the money options that expire Friday which may snuff out some potential volatility. |
| Market Outlook: |
| June support now sits at 3000, with resistance 3100 and then 3200 based on open interest levels. |
| Event | Time EST | Actual | Forecast | Previous |
| No events | – | – | – | – |
| Signal Name | Latest Data | Previous |
| SPX Ref: | 2976 | 3040 |
| VIX Ref: | 41.61 | 35.84 |
| SG Gamma Index: | -0.45 | -0.37 |
| Gamma Notional: | $-330.76MM | $-167.55MM |
| SGI Imp. 1SD Move: | 1.9% | 292.0 | 3032.0 |
| Zero Gamma Level: | 3044.0 | 3079.0 |
| Vol Trig: | 3040 | 3055 |
| High Gamma Strike Resistance: | 3050 | 3300 |
| Top Abs. Gamma Strike: | 3000 | 3000 |
| Put Wall Support: | 3000 | 2950 |
| Call Wall Strike: | 3050 | 3300 |
| CP Gam Tilt: | 0.82 | 0.9 |
| Delta Neutral Px: | 2917.0 | |
| Net Delta: | $16,146.87MM | $16,803.29MM |
| 25D Risk Reversal | -0.14 | -0.15 |
| Model Forecast: |
| Top Absolute Gamma Strikes: [3200, 3150, 3100, 3050, 3025, 3000, 2950, 2900, 2850, 2800] The Volatility Trigger has moved DOWN: 3040 from: 3055 The PutWall has moved to: 3000 from: 2950 The Call Wall has moved to: 3050 from: 3300 The High Gamma Strike has moved to: 3050 from: 3300 SPX is below the volatility trigger. The 3044.0 level is first level of resistance and is critical as its the negative gamma threshold. The trigger level of: 3040 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: $-330.76MM from: $-168.00MM Gamma is tilted towards Puts, may indicate puts are expensive Negative gamma is moderate favoring further swings in the market |