Futures have pulled back to 4650. Support is at 4615, and resistance at 4683. While the S&P maintains a fair amount of positive gamma, we see both QQQ and IWM holding negative gamma positions. The implication here is that we should see higher relative volatility in Nasdaq & Russell vs S&P.
We’d been anticipating a fairly quiet market (OPEX “pin”) ahead of tomorrows FOMC, and one could argue that’s relatively occurred in the S&P. Below we’ve plotted the SPY (blue) vs QQQ(teal) and IWM(orange), and you can see that even over just the last 5 days the contrast in performance is striking.
Furthermore (as mentioned last night), single stock volatility remains quite high. The sharp negative performance of many stocks is drawing out large put volumes, creating highly concentrated negative gamma in the 12/17 expiration.
We have nothing constructive to offer about the FOMC meeting itself, or the markets reaction to the event. However, what seems apparent is that the Fed will trigger a “release” of flows tied to a large amount of very short dated negative gamma.
The idea here that we cannot shake is that we generally view the expiration of large put positions as a bullish catalyst (dealers unwind short stock hedges). Stocks falling farther into 12/17 drives that negative put gamma higher which could lead to a large short (hedge) cover rally into Christmas.
If you recall back to December of ’18 the markets had been dropping sharply into December OPEX. The Monday after OPEX was Christmas Eve, with these infamous headlines:
Despite that doom, the market rallied ~5% from Xmas Eve into 2018 year end.
Our point here is that positioning matters, and the current positioning is quite negative but that is heavily tied to 12/17 expiration. Either a bullish Fed and/or OPEX could trigger a violent rally that is purely a function of puts positions unwinding.
Model Overview:
4600 gamma flip level, 4550 critical support. 4700 overhead target.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4676 | 4670 | 466 | 16093 | 392 |
| SpotGamma Imp. 1 Day Move: | 0.5%, | Est 1 StdDev Open to Close Range (±pts): 23.0 | |||
| SpotGamma Imp. 5 Day Move: | 2.31% | 4725 (Monday Ref Px) | Range: 4617.0 | 4835.0 | ||
| SpotGamma Gamma Index™: | 0.63 | 1.57 | 0.14 | 0.02 | -0.05 |
| Volatility Trigger™: | 4615 | 4660 | 464 | 16190 | 396 |
| SpotGamma Absolute Gamma Strike: | 4700 | 4700 | 470 | 16250 | 400 |
| Gamma Notional(MM): | $88 | $-54 | $569 | $3 | $-250 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4676 | 4670 | 0 | 0 | 0 |
| Put Wall Support: | 4400 | 4400 | 450 | 16150 | 390 |
| Call Wall Strike: | 4750 | 4750 | 470 | 16575 | 400 |
| CP Gam Tilt: | 1.13 | 0.98 | 1.19 | 1.16 | 0.84 |
| Delta Neutral Px: | 4481 | ||||
| Net Delta(MM): | $1,961,206 | $1,951,908 | $208,291 | $51,344 | $108,469 |
| 25D Risk Reversal | -0.08 | -0.08 | -0.08 | -0.08 | -0.09 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4700, 4675, 4650, 4600] |
| SPY: [472, 470, 465, 460] |
| QQQ: [400, 395, 390, 385] |
| NDX:[16575, 16250, 16150, 16000] |
| SPX Combo: [(4814.0, 77.52), (4810.0, 96.87), (4791.0, 74.28), (4786.0, 90.39), (4782.0, 78.1), (4768.0, 74.68), (4763.0, 87.16), (4758.0, 97.77), (4740.0, 78.55), (4735.0, 94.81), (4721.0, 76.38), (4712.0, 97.37), (4693.0, 73.16), (4683.0, 82.55), (4562.0, 1.85)] |
| SPY Combo: [474.5, 469.84, 479.63, 472.17, 477.3] |
| NDX Combo: [15704.0, 15911.0] |
