A strong rally has pushed futures to 4650. This signals that the market has unlocked a bit of positive gamma, and with that our estimated max move is only 0.71% for today (vs 1.14% y’day). We mark resistance at 4678, then 4700. Support lies at 4650 & 4600.
Whats clear is that implied volatility [IV] has been crushed, and that led to a sharp vanna rally. We had been giving edge to this move for several days, as IV (i.e. VIX) had been very rich. It appears that the catalyst was a reduction of fear around Covid, as evidenced by rallies in sectors such as airlines (XAL +6%).
While IV has deflated, markets still must contend with next weeks FOMC(12/15). It could be that general market angst has been reduced, but we are confident that the Fed event carries an “even vol premium”. As such, we think that it may be a challenge for the vanna trade to fuel markets much higher. Further to this point we’d note that much of the 4550-4650 area is a “void” and large positive gamma bars (i.e. resistance) set in >=4678.
Additionally, we wanted to highlight some interesting data points which point to the recent selling as a “deleveraging event”. With all the talk of “taper” its clear that speculative “unprofitable” tech/memes have been crushed. The chart below highlights 1 month performance of many of these names, which is dismal. Many of these names were associated with “call gamma squeezes” at some point this year.
Syncing with this is a large shift higher in equity put volume. As we showed last night, single stock put volumes (as defined by TradingView) are at or above record highs. Meanwhile SPX put volumes are rather benign. If markets were truly concerned about a credit event or the like, you’d think that S&P500 put volumes would shift meaningfully higher – that didn’t happen (as of yet).
Our bottom line is this: We feel this rally was very much vanna induced (ie IV crush) that fell in line with our expectations. There is a fair amount of gamma at the 4700 strike, and we think it will be a challenge for markets to punch through that level pre-FOMC. As we think that much of this rally was akin to “short covering” we note that the void down to 4550 remains.
Model Overview:
4600 gamma flip level, 4550 critical support. 4700 overhead target.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4617 | 4594 | 460 | 15943 | 386 |
| SpotGamma Imp. 1 Day Move: | 0.71%, | Est 1 StdDev Open to Close Range (±pts): 33.0 | |||
| SpotGamma Imp. 5 Day Move: | 4.1% | 4559 (Monday Ref Px) | Range: 4373.0 | 4747.0 | ||
| SpotGamma Gamma Index™: | -0.11 | -0.62 | -0.05 | 0.02 | -0.06 |
| Volatility Trigger™: | 4570 | 4565 | 457 | 15700 | 386 |
| SpotGamma Absolute Gamma Strike: | 4700 | 4500 | 470 | 16575 | 400 |
| Gamma Notional(MM): | $-86 | $-178 | $125 | $4 | $-325 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4608 | 4620 | 0 | 0 | 0 |
| Put Wall Support: | 4400 | 4100 | 450 | 15000 | 380 |
| Call Wall Strike: | 4800 | 4800 | 465 | 16575 | 400 |
| CP Gam Tilt: | 0.98 | 0.91 | 1.04 | 1.34 | 0.77 |
| Delta Neutral Px: | 4458 | ||||
| Net Delta(MM): | $1,925,797 | $1,953,106 | $215,147 | $45,820 | $104,231 |
| 25D Risk Reversal | -0.11 | -0.12 | -0.11 | -0.11 | -0.11 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4700, 4650, 4600, 4500] |
| SPY: [470, 465, 460, 450] |
| QQQ: [400, 390, 385, 380] |
| NDX:[16575, 16000, 15500, 15000] |
| SPX Combo: [4729.0, 4752.0, 4678.0, 4733.0, 4701.0] |
| SPY Combo: [469.8, 472.09, 464.75, 470.26, 467.05] |
| NDX Combo: [15704.0, 15911.0] |
