Futures held tight overnight and are currently trading near 4395. 4400/4410 in SPX (4410 = 440 SPY) is the key area today, with support at 4380 and resistance at 4450.

Both the Put Wall and our gamma flip lines moved a bit higher, which we translate as hedges being added underneath current SPX prices. This is a positive signal, and in fact the Put Wall moving to a higher strike is statistically bullish.

For several days we have (qualitatively) opined that the S&P500 had to recapture 4400 for markets to resume a bullish stance.  That appears to have happened,  and with the gamma flip/put wall moving higher we could argue that the air pocket below has filled in. That being said, gamma levels remain small and the market is still (quantitatively) poised for volatility.

You can see this implied in our vanna model, which holds a right skew which implies that due to implied volatility dealers may still be buying as markets increase, and shorting as they decline. We note the QQQ still holds a very volatility vanna skew which indicates much higher relative movement.

Next week is monthly OPEX week (10/15/21), which means a fairly large set of options positions expire. There are obviously a lot of put options tied to this expiration, and as we march toward next Friday those puts will start to decay rather rapidly. This “charm” component could mean dealers buy back futures as these puts decay which would add to any vanna flows if implied volatility [IV] continues to decline.  Put decay + lower IV is a bullish tailwind, particularly in QQQ.

The “pin” area for 10/15 OPEX appears to be forming in the 4450-4500 area based on current data, and we maintain a bullish stance until/unless the 4380 level is breached.

Model Overview:

Large negative gamma position forecasts large, volatility swings. This should continue until/unless the S&P recovers 4400.