Futures pushed higher overnight to 4445, indicating an SPX opening near 4450. Adding the overnight move to yesterdays 1.7%, we arrive at a fairly large positive gamma position which is centered on that 4450 strike. With positive gamma comes a lower volatility forecast for today, with a max estimated move of 0.63%. We see strong resistance at 4460, then 4480. Support lies at 4410.
While we had been paying respect to the potential of a violent move higher, we were a bit surprised as to the magnitude of yesterdays move. It spoke to some flows beyond that of just “vanna”, and had a “long volatility” tilt to it. Todays volume dashboards revealed some rather spectacular volumes. First we note the put and call volume at 4400 which registered at 100k and 80k respectively. These are very large for a single strike. Second we note nearly 60k volume at the 4450 strike, also very large. Further to this there was volume of nearly 500k for the SPY 442 calls. This volume did not translate into large changes in OI (see data here). Its clear that intraday options volumes were heavily involved in this rally.
We turn now to the situation at hand. The vanna models from yesterday (bottom, left) showed a left skew which implied high volatility, and that has not flipped (bottom, right). Todays chart holds a right skew which implies dealers have a heavy amount of futures to short on rallies providing resistance in the 4450-4500 level. Further we’d note that despite >30% of SPX, SPY & QQQ gamma expired today, that resistance seems to hold into Monday (although its lighter resistance).
To frame the options positioning in a slightly different light, we have posted the Combo (SPX + SPY) gamma profile below. Note how <4460 the gamma bars are flat to negative, implying that not much support sits underneath. Further we note the Vol Trigger (ie where gamma flips from positive to negative) now sits at 4400, which we consider critical support for this market.
The bottom line here is this: If the S&P closes >4460 today it should have decent support into Monday. A close under that line places the market at risk of entering the air pocket that this expiration has created (recall many puts expire today <4400). Historically we look for volatility to increase in the week after OPEX, and due to the large amount of gamma expiring today (>30%) we see ample reason for caution into Monday.
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: | 4445 | 4441 | 444 | 15091 | 366 |
| SpotGamma Imp. 1 Day Move: | 0.63%, | 28.0 pts | Range: 4417.0 | 4473.0 | ||
| SpotGamma Imp. 5 Day Move: | 2.58% | 4368 (Monday Ref Px) | Range: 4256.0 | 4481.0 | ||
| SpotGamma Gamma Index™: | 1.56 | 1.55 | 0.10 | 0.09 | -0.08 |
| Volatility Trigger™: | 4400 | 4400 | 441 | 14975 | 366 |
| SpotGamma Absolute Gamma Strike: | 4450 | 4450 | 440 | 15500 | 365 |
| Gamma Notional(MM): | $524 | $477 | $823 | $14 | $-441 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4407 | 4404 | 0 | 0 | 0 |
| Put Wall Support: | 4300 | 4300 | 440 | 14950 | 350 |
| Call Wall Strike: | 4500 | 4500 | 450 | 15030 | 370 |
| CP Gam Tilt: | 1.36 | 1.21 | 1.18 | 1.77 | 0.8 |
| Delta Neutral Px: | 4324 | ||||
| Net Delta(MM): | $1,537,200 | $1,535,989 | $194,813 | $47,477 | $93,114 |
| 25D Risk Reversal | -0.07 | -0.07 | -0.06 | -0.06 | -0.05 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4500, 4450, 4425, 4400] |
| SPY: [445, 443, 442, 440] |
| QQQ: [370, 368, 365, 360] |
| NDX:[15500, 15100, 15025, 15000] |
| SPX Combo: [4460.0, 4509.0, 4474.0, 4483.0, 4558.0] |
| SPY Combo: [445.33, 450.22, 446.66, 447.55, 455.1] |
| NDX Combo: [15230.0, 15034.0, 14732.0, 15441.0, 14822.0] |
