Futures have re-filled the gap lower, currently down to 4280. As gamma remains sharply negative we look for another day of high volatility. Resistance is at 4300, then 4350. Support is at 4260. Watching implied volatility (ex: VIX) is critical today, if that trends lower then we favor a rally. Should Implied volatility stay flat or move higher then we look for flat to lower S&P500 prices.
In last nights note we attributed this “ping pong” due to the unchanging options landscape. Despite the volatility there are little material changes to options positions, and so dealers (they’re short gamma) are simply adjusting their hedge. They likely need to buy futures up to the 4365 zero gamma line (zero gamma implies “no more gamma hedge needed”) and selling down to the large put area <4300.
Our overnight data indicates that rather slowly the options positions are beginning to fill in at prices overhead. The Volatility Trigger (aka gamma flip line) has dripped lower to 4345 (from 4370) and we note a lot of gamma now at the 4350 position. In other words: our upper bound is now 15 handles lower today than yesterday. The air pocket above 4300 is constricting.
The longer term implications of this are that it may be tougher for markets to regain previous highs as more gamma resistance fills in directly overhead. You can see this in the SPY chart below wherein 430 is a huge gamma bar, with 435-450 filling in with call gamma (ie resistance).
Whats interesting is that puts are not being materially traded either. Therefore the lower SPX price bound isn’t budging, but implied volatility is also range bound because big puts aren’t being sold. If real money sellers decide to join the party, and/or incremental put buyers step up then the market could push rather violently to the downside (new puts bought mean new negative deltas to hedge + vanna hedge selling).
Model Overview:
Large negative gamma position forecasts large, volatility swings. This should continue until/unless the S&P recovers 4400.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4313 | 4336 | 433 | 14553 | 357 |
| SpotGamma Imp. 1 Day Move: | 1.65%, | 71.0 pts | Range: 4242.0 | 4384.0 | ||
| SpotGamma Imp. 5 Day Move: | 6.11% | 4326 (Monday Ref Px) | Range: 4062.0 | 4590.0 | ||
| SpotGamma Gamma Index™: | -0.36 | -1.35 | -0.20 | -0.03 | -0.18 |
| Volatility Trigger™: | 4345 | 4370 | 435 | 14975 | 370 |
| SpotGamma Absolute Gamma Strike: | 4350 | 4200 | 430 | 15500 | 350 |
| Gamma Notional(MM): | $-600 | $-422 | $-889 | $-5 | $-906 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4378 | 4401 | 0 | 0 | 0 |
| Put Wall Support: | 4200 | 4200 | 430 | 14725 | 350 |
| Call Wall Strike: | 4500 | 4500 | 450 | 15375 | 375 |
| CP Gam Tilt: | 0.91 | 0.77 | 0.78 | 0.68 | 0.54 |
| Delta Neutral Px: | 4291 | ||||
| Net Delta(MM): | $1,429,545 | $1,470,503 | $186,359 | $44,572 | $95,360 |
| 25D Risk Reversal | -0.09 | -0.09 | -0.09 | -0.09 | -0.09 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4500, 4450, 4400, 4350] |
| SPY: [440, 435, 430, 425] |
| QQQ: [360, 358, 355, 350] |
| NDX:[15500, 15375, 15000, 14000] |
| SPX Combo: [4325.0, 4265.0, 4316.0, 4217.0, 4415.0] |
| SPY Combo: [434.4, 428.34, 433.53, 423.57, 443.49] |
| NDX Combo: [14255.0, 14459.0, 14590.0, 14386.0, 14663.0] |
