Futures are flat to last nights close at 4650. Todays max estimated S&P move is 1.0%. This higher volatility estimate signals that gamma has reduced overnight. We see support at 4645, an then 4626. Resistance lies at 4699.
As noted above, the current implied move of 1% implies a reduction in gamma, particularly from earlier in this week when our foretasted moves were closer to 0.60%. We estimate that todays gamma drawdown is only 5% in SPX, but >30% in SPY & QQQ – which is material. This suggests volatility should tick up next week as we head into Wednesdays VIX expiration and November Monthly OPEX (Friday, 11/19).
It also appears that while the SPX Index options hold a small positive gamma position, both SPY and QQQ have a slightly negative gamma position. Combined with the potential for high single stock volatility, we view a “window of weakness” ahead.
Below we’ve plotted the SG Gamma Index vs the forward 1 day return, and you can see that as gamma reduces (either through lower SPX prices or expiration) that volatility potential increases. This simply implies that movement should increase, but doesn’t imply a direction.
Over the past several weeks the S&P has been more or less held in the 4650-4700 range and our view is that because of higher “volatility potential” this range should be broken into 11/19 expiration. We place edge on a downside expression to volatility from the idea that this market has experienced a great deal of convex moves in single stocks, and we think those single stock call premiums are likely to continue deflating into Friday expiration. This could lead to dealers unwinding long stock hedges, leading to some market consolidation.
We note that regardless of forecasts, our official “sell signal” does not fire off until/unless the S&P breaches the Volatility Trigger (currently at 4645).
Model Overview:
Positive gamma means the market should be supported as long as SPX>4600.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4650 | 4645 | 463 | 16062 | 390 |
| SpotGamma Imp. 1 Day Move: | 1.0%, | 46.0 pts | Range: 4604.0 | 4696.0 | ||
| SpotGamma Imp. 5 Day Move: | 2.05% | 4694 (Monday Ref Px) | Range: 4598.0 | 4791.0 | ||
| SpotGamma Gamma Index™: | 1.04 | 1.00 | -0.10 | 0.03 | -0.07 |
| Volatility Trigger™: | 4645 | 4645 | 464 | 15720 | 391 |
| SpotGamma Absolute Gamma Strike: | 4650 | 4700 | 465 | 16000 | 390 |
| Gamma Notional(MM): | $320 | $228 | $-175 | $5 | $-306 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4609 | 4604 | 0 | 0 | 0 |
| Put Wall Support: | 4000 | 4000 | 462 | 15600 | 390 |
| Call Wall Strike: | 4700 | 4700 | 470 | 16000 | 400 |
| CP Gam Tilt: | 1.23 | 1.11 | 0.96 | 1.42 | 0.83 |
| Delta Neutral Px: | 4423 | ||||
| Net Delta(MM): | $1,911,721 | $1,905,800 | $226,012 | $54,097 | $108,435 |
| 25D Risk Reversal | -0.07 | -0.08 | -0.06 | -0.05 | -0.05 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4700, 4650, 4600, 4500] |
| SPY: [470, 465, 464, 460] |
| QQQ: [400, 390, 388, 380] |
| NDX:[16000, 15900, 15600, 15500] |
| SPX Combo: [4699.0, 4750.0, 4722.0, 4708.0, 4629.0] |
| SPY Combo: [468.87, 473.97, 471.19, 469.8, 461.91] |
| NDX Combo: [16019.0, 16437.0, 15939.0, 15987.0, 16228.0] |
