Our vanna model reveals the change in volatility as shown below. To the left we have yesterdays chart which depicts a steep skew, meaning that the fuel provided by implied volatility is quite large (adding to dealers shorting futures on a market drop, and buying on a rally).
After this overnight rally we still have a right skew, but with a significant reduction in force. Any additional decline in implied volatility offers with a smaller market tailwind, and if we shift over 4400 that tailwind will transition to headwind.
While the rally likely temps incremental dip buyers, we do not think stocks are “out of the woods” until the S&P500 recovers the 4400 level. There was a lot of force to the rally, but one could view this overnight move as fueled from a release of event volatility tied to the debt ceiling. 4400SPX/440SPY should function as a fairly stiff pin/resistance level, and our first major support/resistance strikes are a fair distance off (as noted above): 4365 & 4450.
Should the market close>4400 positive gamma kicks in and implied volatility (ie VIX) should reduce. This adds a vanna-based pull higher for equities.
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: | 4382 | 4313 | 432 | 14877 | 359 |
| SpotGamma Imp. 1 Day Move: | 1.66%, | 73.0 pts | Range: 4309.0 | 4455.0 | ||
| SpotGamma Imp. 5 Day Move: | 6.11% | 4326 (Monday Ref Px) | Range: 4062.0 | 4590.0 | ||
| SpotGamma Gamma Index™: | -0.46 | -0.36 | -0.13 | -0.02 | -0.15 |
| Volatility Trigger™: | 4365 | 4345 | 435 | 14975 | 369 |
| SpotGamma Absolute Gamma Strike: | 4450 | 4350 | 440 | 15500 | 350 |
| Gamma Notional(MM): | $-130 | $-600 | $-976 | $1 | $-770 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4381 | 4378 | 0 | 0 | 0 |
| Put Wall Support: | 4200 | 4200 | 430 | 14725 | 350 |
| Call Wall Strike: | 4500 | 4500 | 450 | 15375 | 375 |
| CP Gam Tilt: | 0.89 | 0.71 | 0.75 | 1.04 | 0.59 |
| Delta Neutral Px: | 4295 | ||||
| Net Delta(MM): | $1,433,460 | $1,429,545 | $184,598 | $45,578 | $98,418 |
| 25D Risk Reversal | -0.09 | -0.09 | -0.08 | -0.09 | -0.09 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4500, 4450, 4400, 4350] |
| SPY: [450, 440, 435, 430] |
| QQQ: [370, 360, 355, 350] |
| NDX:[15500, 15375, 15000, 14000] |
| SPX Combo: [4466.0, 4313.0, 4265.0, 4339.0, 4322.0] |
| SPY Combo: [441.76, 426.6, 421.84, 429.2, 427.47] |
| NDX Combo: [14481.0, 14690.0, 14898.0, 14809.0, 14645.0] |
