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Informe SG Levels

Nov 8, 2021

Futures are up slightly from Fridays close, holding 4690. We look for a tight trading range today, with a max move of 0.65%. It appears the S&P will open up against Call Wall resistance of 470(SPY)/4700(SPX) which gives us a “resistance range” of 4700-4715 (4715=SPY470 equivalent). As you can see below, this 470SPY level was major resistance on Friday. Support shows at 4689 and 4650.

The current situation is best framed by the following two charts:

  1. As noted above (and in previous notes) there is a massive gamma bar at 4700 (left chart). We view this as a large magnet which holds the S&P down. We see less resistance below this area, then above. Until/unless calls build up at higher strikes (aka the Call Wall shifts higher) then we do not look for higher S&P500 prices.
  2. Our vanna model shows a sharp right tilt. This implies that dealers have to short futures as the market rallies to offset their positive options deltas (y axis). In other words if dealers are net long S&P calls (as we believe) then they must sell futures as the market rises to offset risk. As the market declines dealers can buy those futures back.

Overall we see little reason for gamma to decline significantly which forecasts a low risk market for the next few sessions. Our gamma flip line rests down below 4500, and so it would take a few sessions of lower S&P prices to wear away dealer support (positive gamma buying) and higher volatility.

The view past “a few sessions” muddies somewhat. Below we’ve posted the recent OCC data, which shows the past weeks activity in call buying & selling. As you can see the call buying (blue line) over the last two weeks has been rather shocking at >$25bn per week. Not only that, you can see that traders net shorted (aka sold to open) equity put options (orange line). TSLA is obviously the driver of this phenomenon, and we think this chart most clearly depicts just how large this call buying was the last two weeks. However, you cannot look past the myriad of names rocketing higher the last two weeks like NVDA and AMD.

These convex moves are obviously cause for concern. These are clear signs of excessive leverage and risk, and while this seems to be mainly focused on a select handful of names, we note the QQQ is up +11% since October 1.

Its possible that Elon may have helped regulate some of this euphoria this weekend, but we suspect that this is not yet a larger signal of “peak excitement”.

Regardless our models hold two clear signals: if the Call Wall rolls higher then we look for higher S&P prices. If the S&P breaks the Vol Trigger (gamma lip line) then we look for lower S&P prices.

Model Overview:

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

SpotGamma Proprietary Levels Latest Data Previous SPY NDX QQQ
Ref Price: 4681 4685 468 16335 398
SpotGamma Imp. 1 Day Move: 0.65%, 30.0 pts Range: 4651.0 | 4711.0
SpotGamma Imp. 5 Day Move: 2.06% 4681 (Monday Ref Px) Range: 4585.0 | 4778.0
SpotGamma Gamma Index™: 1.78 1.80 0.10 0.05 0.04
Volatility Trigger™: 4495 4495 467 15020 396
SpotGamma Absolute Gamma Strike: 4700 4700 470 15500 400
Gamma Notional(MM): $548 $846 $1,442 $7 $64
Additional Key Levels Latest Data Previous SPY NDX QQQ
Zero Gamma Level: 4607 4576 0 0 0
Put Wall Support: 4000 4000 463 13500 396
Call Wall Strike: 4700 4700 470 15125 400
CP Gam Tilt: 1.56 1.54 1.49 1.74 1.05
Delta Neutral Px: 4418
Net Delta(MM): $1,910,470 $1,840,164 $212,985 $61,637 $105,709
25D Risk Reversal -0.07 -0.06 -0.05 -0.05 -0.04
Key Support & Resistance Strikes:
SPX: [4700, 4650, 4600, 4500]
SPY: [470, 468, 465, 460]
QQQ: [400, 398, 395, 380]
NDX:[16300, 16000, 15500, 15125]
SPX Combo: [4689.0, 4736.0, 4787.0, 4712.0, 4717.0]
SPY Combo: [469.0, 473.68, 478.84, 471.34, 471.81]
NDX Combo: [16378.0, 16296.0, 16345.0, 16459.0, 16590.0]
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