Informe SG Levels

Futures pulled back overnight to 4454. It should be a fairly active day today, with ~30% of SPX gamma expiring at 9:30AM ET. We then have 60% of SPY, 35% of QQQ, and a very large set of stock options expiring on the close. 4500SPX/450SPY is still the biggest overhead level, with another heavy concentration of gamma at the 4475 area.

Last night we mentioned that call options were likely being closed up yesterday, and that seems to be true in spades. Our SPY data shows in-the-money SPY calls up to ~450 net closed. This is quite unique, but given its expiration today it could be someone decided to get out before the SPY dividend (paid today).

The visual on this expiration is well framed by this gamma table wherein light grey depicts the gamma expiring today. As you can see the “board” will be reset for next week, just ahead of the 9/22 FOMC. This implies there are no big strikes for markets to pin to on Monday and “anythings game”.

To the point above, its tough to have an edge forecasting the flow today due to expiration. We anticipate volatility being inline with that of the last few days, and note there are a few more puts expiring today than calls. This could give a little tailwind for bulls due to dealers covering short hedges – but its not a massive put skew. We will be watching implied volatility (ie VIX) very closely for a signal today, as we anticipate traders now starting to focus on the FOMC meeting. If they choose to roll to new put hedges today that could pressure markets, and further we expect the supply of short volatility to diminish greatly (traders dont want to be short vol into Fed). This, along with what will be very flat to negative gamma means that “bounce fuel” is non-existent. This doesn’t mean markets have to crash, it just means a key support mechanism is gone.

Model Overview:

4500 resistance, 4440 support. into 9/17 OPEX.