Little movement in futures overnight which are at 4450. We look for another active trading day, noting resistance at 4465 and 4500. Support lies at 4440 & 4406.
The VIX settlement is this morning at 9AM EST, which is something to be aware of. Traders should continue rolling and shifting positions, and need to account for the FOMC next week. We don’t anticipate any unusual movement around settlement, but its something to be aware of.
In general it appears that positions are filling in around this 4450 area, with 4400SPX/440SPY and 4500SPX/450SPY showing as large “bookends”. While little of this position expires today in SPX, roughly 20% of SPY gamma expires at the close, which should add to volatility into Friday.
Relatedly, we think one of these ends is tagged into 9/17 OPEX, and that could determine how we open next week. A move up to 4500 likely keeps markets quiet into the FOMC, but a push down to 4400 starts to spark the mechanics of negative gamma and pressures markets lower. Regardless, we’re in a negative gamma position and those days are most often about large directional swings.
Things have thus far played out according to forecasts. Last week we outlined the risks embedded in this market due to the lineup of events (expirations/FOMC) and shifts in gamma (catalyst for volatility). Over the last 5 days markets are down ~2.5% and the implied volatility[IV] term structure flattened out. You can see this below, where in September 17th at-the-money IV (yellow) is now matching that of October. We think this was the “easy” part of the trade.
The signal that “fear” is in the market is when that short dated IV goes above longer dated IV – backwardation. Because the market has not taken the bear bait, we are starting to give odds on a return to 4500 here based on the charm/vanna dynamic (lots of decay in next 2 days). We certainly respect a break to the downside, but short dated vol sellers may jump on here based on the fact that Sep 17th OPEX is “pre-FOMC” and those short dated options (yellow line, above) are “rich”.
Model Overview:
4400 support, 4500 resistance into 9/17 OPEX. VIX Exp 9/15 opens a window of weakness into 9/22 FOMC.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4448 | 4447 | 444 | 15399 | 375 |
| SpotGamma Imp. 1 Day Move: | 1.27%, | 56.0 pts | Range: 4392.0 | 4504.0 | ||
| SpotGamma Imp. 5 Day Move: | 4.55% | 4472 (Monday Ref Px) | Range: 4269.0 | 4676.0 | ||
| SpotGamma Gamma Index™: | -0.30 | 0.10 | -0.08 | 0.00 | -0.14 |
| Volatility Trigger™: | 4465 | 4425 | 445 | 15070 | 377 |
| SpotGamma Absolute Gamma Strike: | 4400 | 4500 | 440 | 15075 | 380 |
| Gamma Notional(MM): | $-203 | $-363 | $-239 | $3 | $-644 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4449 | 4482 | 0 | 0 | 0 |
| Put Wall Support: | 4400 | 4300 | 430 | 14450 | 370 |
| Call Wall Strike: | 4500 | 4500 | 450 | 15075 | 385 |
| CP Gam Tilt: | 0.95 | 0.86 | 0.95 | 1.15 | 0.69 |
| Delta Neutral Px: | 4327 | ||||
| Net Delta(MM): | $1,652,616 | $1,676,663 | $219,734 | $54,538 | $98,865 |
| 25D Risk Reversal | -0.06 | -0.07 | -0.09 | -0.07 | -0.08 |
| Top Absolute Gamma Strikes: |
|---|
| SPX: [4500, 4475, 4450, 4400] |
| SPY: [450, 446, 445, 440] |
| QQQ: [380, 376, 375, 370] |
| NDX:[15500, 15075, 15050, 15000] |
| SPX Combo: [4509.0, 4406.0, 4531.0, 4558.0, 4358.0] |
| SPY Combo: [449.94, 439.73, 452.17, 454.83, 434.84] |
| NDX Combo: [15108.0, 15200.0, 15000.0, 15401.0, 15817.0] |
