Informe SG Levels

Futures initially broker higher overnight to 4197 but have reversed to 4183. Gamma reduced as anticipated which equates to an estimated SPX max move of 85bps for today. The QQQ and SPY seem poised to open in negative gamma territory which suggests that volatility should be high and pushing that 85 bps SPX estimate.

We look for support in the SPX at 4175, a break of that line implies an increase in volatility which likely expresses to the downside. 4150 would be first support under there.

To the upside the SPX Call Wall (which is our maximum, longer term upside level) holds at 4250, but that conflicts with SPY which is at 420. We also note that the largest gamma strike is at 4200 for the SPX, which equates to a blended level of 4207 resistance for today.

Our expectations remain for a break from this 4200 level as stated last week.  To add into the mix we now have the first ever Monday QQQ expiration which should serve to increase the pull of the options market in NDX/QQQ.

The vanna charts most efficiently lay out this setup. QQQ is shown below, but SPY has the same profile in which there is a flat to mild bid from dealer hedging to the upside, but flows are “skewed” toward selling if the market slides and implied volatility (ie VIX) spikes.  We note that vanna in the SPX is much more “neutral” which we think its limiting the odds of a major rip to the upside (for today). However, if options positions roll higher to the 425/4250 area and VIX comes down, then that 4250 level is easily achievable in the next 2 days (for those of you new to this vanna model see video here).

Model Overview:

4100-4250 is the range into May OPEX. Gamma is currently moderate which should lead to low volatility. As long as markets are >4170 we anticipate a low volatility market, which grinds higher.