Informe SG Levels

Futures are at 4350 from overnight lows of 4322. Things took a bit more of a bearish tilt overnight, with a sharp tick lower in the SG Gamma index (-1.02 vs -0.67). The implication is obviously more volatility potential with our estimated max move today being  2.7% (more on this below).  For today we see the major “pivot” line at 4350,  with resistance at 4370 and 4400. Support lies at 4300.

First, in regards to 4350 we saw large “straddle” volume of 20k puts + calls each added to open interest yesterday.  That pushed this level to the largest gamma strike on the board, aka pin point.  As interest fills in at lower strike values, it makes it harder to rally.

Outside of this large straddle trade (which is a trade we often see) there was little shift at other strikes.  The current SG Index reading is in the volatility “sweet spot” which generally produces the most active markets.  However (despite a fair amount of intraday volatility) the market has effectively gone no where over the last ~5 days.  Generally this high of a negative gamma reading coincides with high implied volatility readings, and high levels of realized volatility.  In other words, there is a ton of energy stored up and we aren’t getting the market move that discharges this energy. Very odd.

While we do our absolute best to be objective about markets we can’t help to feel that this updated data continues to get more negative. Overnight our RiskRevesal metric slid to -10 indicating put demand ticked up. The vanna models show a very sharp left skew, which also forecast high volatility. Lastly note this delta tilt chart below. We don’t often talk about this metric, but we do take note of “extremes”. As you can see below the metric is down near its lower bound, a signal that corresponds with large drops in the market. The S&P is currently down 5% from 9/6 all time highs of 4547.

Model Overview:

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