Futures have once again pushed higher to 4575. There was a small build in gamma overnight equating to an estimated max move of just 0.68% today. The SPX Call Wall shifts to 4600, which now syncs with the SPY 460 Call Wall. This forms overhead resistance in the 4600-4615 range. Support is at 4548.
What we are seeing now is that implied volatility (ie VIX) is hitting something of a lower bound. This does not mean the VIX must spike, but it does indicate a key mechanism for ramping equities higher has been drained. Compensating for this is the rampant “risk on” sentiment showing from moves the likes of TSLA.
This being said, the current options position in the S&P supports “risk on”. There is a robust level of positive gamma, and plenty of interest at strikes underneath. You can get an idea of this gamma distribution in the EquityHub snapshot below. Here you can see that there is a “peak” around the 4500 area which translates to “support” due to high open interest.
This also lends to the idea that its tough for the S&P to crash from this level, and it would likely take a few days of weakness to wear away the gamma-based support underneath.
The gamma distribution tails off sharply to the right of 4600, which is a function of low open interest (in gamma terms) at strikes above. As interest builds at call strikes overhead the “peak” of the distribution slides up from 4500 to higher prices. Ultimately a large expiration, or a grind lower in stock prices serves to reset this formation.
In regards to TSLA, we note that a record 2.4million calls traded yesterday, but the call open interest only increased by ~250k. We think that TSLA is due for a correction into Friday as >30% of the stocks gamma is tied to10/29 expiration, so charm (time decay) and vanna (call IV declining) flows kick in.
Ultimately this episode shows the highly speculative transient nature of the flow driving this (any many other assets) up. As mentioned last night, we believe this activity brings a lot of risk into markets and is a concern going forward.
Model Overview:
As long as the S&P500 holds 4500 we expect positive gamma flows and lower implied volatility to boost markets.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4568 | 4565 | 455 | 15523 | 377 |
| SpotGamma Imp. 1 Day Move: | 0.68%, | 31.0 pts | Range: 4537.0 | 4599.0 | ||
| SpotGamma Imp. 5 Day Move: | 1.72% | 4540 (Monday Ref Px) | Range: 4463.0 | 4619.0 | ||
| SpotGamma Gamma Index™: | 1.83 | 1.51 | -0.01 | 0.03 | -0.05 |
| Volatility Trigger™: | 4440 | 4440 | 451 | 15000 | 374 |
| SpotGamma Absolute Gamma Strike: | 4500 | 4500 | 450 | 15500 | 375 |
| Gamma Notional(MM): | $678 | $747 | $1,117 | $4 | $197 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4496 | 4493 | 0 | 0 | 0 |
| Put Wall Support: | 4300 | 4300 | 450 | 14200 | 370 |
| Call Wall Strike: | 4600 | 4500 | 460 | 15125 | 380 |
| CP Gam Tilt: | 1.58 | 1.51 | 1.37 | 1.35 | 1.14 |
| Delta Neutral Px: | 4377 | ||||
| Net Delta(MM): | $1,489,390 | $1,553,774 | $188,845 | $45,537 | $88,549 |
| 25D Risk Reversal | -0.07 | -0.07 | -0.06 | -0.06 | -0.06 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4600, 4550, 4500, 4450] |
| SPY: [455, 453, 452, 450] |
| QQQ: [380, 375, 374, 370] |
| NDX:[15500, 15125, 14200, 14000] |
| SPX Combo: [4598.0, 4498.0, 4548.0, 4699.0, 4648.0] |
| SPY Combo: [458.74, 448.72, 453.73, 468.76, 463.75] |
| NDX Combo: [15819.0, 15336.0, 15399.0, 15726.0, 15352.0] |
