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Informe SG Levels

Oct 11, 2021 | 0 Comentarios

Futures are near 4365, indicating the SPX is in a very flat to slightly negative gamma position. The implication of this that we expect a fair amount of volatility today, with 4400 major resistance and 4375 support.

Last week we discussed how critical it was for the S&P to regain 4400 in order to stage a move higher.  Above 4400 is where we anticipate(d) positive gamma to regain a foothold, which should reduce volatility (via gamma) and invite an equity tailwind through put options decay (vanna/charm). We’re still of this view.

The OCC data we collect offers some insights into what happened last week. According to this data, Index call options were sold to open in pretty strong size (top chart, blue line). Along with that there was some light put options shorted (orange line), but much less aggressively that in months past.

calls sold puts sold index options spx occ

The point here is that for months the default reaction to any selloff in markets was to short volatility. The recovery time of any dip in the market was measured in hours. Off of the debt ceiling punt last week there was a snap-back rally in which very short dated options (1-3 days to expiration) were sold but nothing “real” (ie larger, longer dated) moved. It seems like traders used Thursdays rally to reposition long volatility/short markets.

The bigger takeaway is this: that reflexive short volatility trade has apparently left the building. We’ve viewed this reflexive vol shorting as a primary driver of markets in the short term. With this mechanism absent, the market seems unable to recover.

If we map out what this means for today, you can see below that its critical for the S&P to hold 4375. The rate of change of gamma (“SG Momentum Index”, Y axis) changes sharply beneath there, down to 4300. This indicates the market will have a lot of speed on a move down aka little support.

Finally we must note that its Monthly OPEX Week. Historically this means that volatility consolidates into Friday, however we currently hold a negative gamma position in all major inidcies. There are roughly 1.4 million SPX puts, 2mm SPY puts, and 1.3mm QQQ puts set to expire on Friday. This is a material number of puts which will start to decay as we push to 10/15, and will likely add to volatility this week.

At some point these puts should provide some bounce fuel (puts decaying/expiring may mean dealer short hedges unwind) – its path dependent and something we will discuss later in the week.

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: 4368 4380 438 14763 361
SpotGamma Imp. 1 Day Move: 1.38%, 60.0 pts Range: 4308.0 | 4428.0
SpotGamma Imp. 5 Day Move: 2.58% 4368 (Monday Ref Px) Range: 4256.0 | 4481.0
SpotGamma Gamma Index™: -0.17 0.04 -0.16 -0.02 -0.17
Volatility Trigger™: 4385 4380 438 14800 369
SpotGamma Absolute Gamma Strike: 4450 4450 440 15500 360
Gamma Notional(MM): $-356 $-335 $-558 $-4 $-922
Additional Key Levels Latest Data Previous SPY NDX QQQ
Zero Gamma Level: 4401 4412 0 0 0
Put Wall Support: 4300 4300 430 14725 350
Call Wall Strike: 4500 4500 450 15375 385
CP Gam Tilt: 0.96 0.84 0.86 0.78 0.53
Delta Neutral Px: 4314
Net Delta(MM): $1,371,748 $1,492,575 $178,952 $42,474 $93,157
25D Risk Reversal -0.09 -0.08 -0.08 -0.09 -0.09
Key Support & Resistance Strikes:
SPX: [4500, 4450, 4400, 4350]
SPY: [440, 438, 435, 430]
QQQ: [370, 365, 360, 350]
NDX:[15500, 15375, 15000, 14700]
SPX Combo: [4477.0, 4425.0, 4277.0, 4329.0, 4451.0]
SPY Combo: [448.81, 443.55, 428.66, 433.92, 446.18]
NDX Combo: [14700.0, 14494.0, 14612.0, 15069.0, 14405.0]
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