Futures have extended gains toward 4600, which is now our gamma flip level. It looks like there was a build in negative gamma overnight, which leads our models to forecast a higher level of volatility for todays cash session (1.31% max open/close move). 4600 will be the key pivot level with resistance at 4625 and 4657. Support is at 4552 then 4500.
We continue to watch implied volatility as our core signal. Tomorrow is VIX expiration, and we head into that expiration with an elevated VIX structure. If you compare todays VIX term structure to that of mid-November you can see current levels (black) remain well above Nov(blue). Nov is “pre Omnicron” and “pre Taper” so it makes sense that current prices are elevated – but we suspect that the VIX expiration will start to drag current prices lower as traders roll.
The implication of this elevated structure is the “vanna trade” wherein declining implied volatility (i.e. VIX) indicates dealers may need to cover short hedges. This in turn creates a tailwind for markets.
We’d also note that our risk reversal metric is currently at -0.07 which is a fairly neutral level (put IV reduced vs call IV). Further, we’ve posted SPX put volumes below which are also at lows.
Our point here is there is no apparent “fear trade” off the back of last weeks FOMC and/or geopolitcal events (covid, stimulus).
Had traders come in to add put positions yesterday things could have gotten very ugly (negative deltas piled onto negative gamma), but once again there was no bearish follow through.
While we do forecast some high volatility of the S&P, the QQQ and IWM are poised for larger relative volatility. In the vanna models posted below, you can see that the QQQ (left) has a much steeper, more “skewed” structure vs SPX (right). This suggests that dealers have relatively more QQQ to buy as prices go higher, and more to sell as QQQ declines. This is what creates higher volatility, and is a function of both the negative gamma position and elevated implied volatility.
Model Overview:
4600 gamma flip level, 4550 critical support. 4700 overhead target into Friday.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4589 | 4597 | 453 | 15737 | 380 |
| SpotGamma Imp. 1 Day Move: | 1.31%, | Est 1 StdDev Open to Close Range (±pts): 60.0 | |||
| SpotGamma Imp. 5 Day Move: | 1.9% | 4557 (Monday Ref Px) | Range: 4471.0 | 4644.0 | ||
| SpotGamma Gamma Index™: | -0.47 | -0.32 | -0.18 | 0.02 | -0.10 |
| Volatility Trigger™: | 4605 | 4695 | 461 | 15775 | 386 |
| SpotGamma Absolute Gamma Strike: | 4600 | 4600 | 460 | 15925 | 380 |
| Gamma Notional(MM): | $-221 | $-38 | $-865 | $2 | $-477 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4624 | 4667 | 0 | 0 | 0 |
| Put Wall Support: | 4400 | 4600 | 450 | 15000 | 355 |
| Call Wall Strike: | 4800 | 4750 | 470 | 15925 | 400 |
| CP Gam Tilt: | 0.87 | 0.92 | 0.69 | 1.3 | 0.62 |
| Delta Neutral Px: | 4531 | ||||
| Net Delta(MM): | $1,306,668 | $773,403 | $152,516 | $33,192 | $85,776 |
| 25D Risk Reversal | -0.07 | -0.07 | -0.07 | -0.07 | -0.07 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4700, 4650, 4600, 4500] |
| SPY: [465, 460, 455, 450] |
| QQQ: [400, 390, 380, 375] |
| NDX:[16250, 15925, 15850, 15000] |
| SPX Combo: [(4726.0, 88.02), (4699.0, 75.12), (4694.0, 75.06), (4676.0, 86.41), (4657.0, 84.79), (4644.0, 83.24), (4625.0, 6.65), (4593.0, 7.34), (4575.0, 1.63), (4552.0, 6.34), (4542.0, 3.62), (4524.0, 4.97), (4501.0, 6.09)] |
| SPY Combo: [453.16, 468.17, 463.17, 461.35, 449.98] |
| NDX Combo: [15704.0, 15911.0] |
