Futures are pushing back to all time highs of 4541. Gamma had a significant build overnight, which leads to an SG implied move of only 0.53% – thats is about as tight as our range gets.  The Call Walls did shift higher overnight,  the SPX moved to 4550, but the SPY jumped to 460.  With that we see resistance at 4565, then 4584. Support is at 4536 and 4525.

It is clear that the options market has confirmed these higher prices, and we estimate about only about 15% of gamma expiring today for the SPX/SPY and 10% for QQQ. This implies that 4500 should remain a strong support into next week, but the estimated range should widen a bit to allow for more movement.

The VIX is poised to open in the high 14’s and our RiskReversal metric is -.04 – showing that demand for calls is very high relative to puts. The “risk on” bid is clearly aggressive.  With near term volatility being crushed, in last nights note we commented on how volatility/vanna flow may continue to be a tailwind into the year end (high VIX contango).  Essentially longer dated volatility has a long way down to near term implied volatility[IV]. The implication here is that as that longer dated implied reprices lower it could will help to inflate equity prices.

If you look at the S&P IV structure below (h/t R.E.) you can see that November IV is breaking sharply, but December is holding up a bit due to the debt ceiling. This infers that traders may be on “cruise control” into November Monthly OPEX, and then IV may catch a bit if the debt ceiling isnt resolved.

Model Overview:

As long as the S&P500 holds 4500 we expect positive gamma flows and lower implied volatility to boost markets.