Informe SG Levels

Futures are at 4222 after putting in overnight highs of 4238. We have a fairly clean and well defined setup today, with our models looking for a maximum move of 0.7% (29 pts). 4250 is the major resistance level, and 4200 support. Markets maintain a material amount of positive gamma as long as the S&P holds 4200, and that generally equates to a low volatility market that grinds higher.
Along with the pick up in positive gamma we can see through the risk reversal metric that traders have reduced what they are paying for put options relative to calls. It was early last week that we highlighted how realized volatility was collapsing, and we think this is now at a lower bound. Along with this lower realized vol, the VIX punched lower on Friday into the 16’s.  As noted above, should markets hold 4200 then our volatility estimates remain low, which should keep realized volatility low. This should continue to pressure implied volatility (ie VIX) and sustains a tailwind for equities.
We would shift to a more neutral view of markets on a break of 4200, and our critical risk line is at 4150. While we do not provide macro analysis, it is worth keeping an eye on the energy developments here in the US. Problems in the energy sector can often rotate into the credit markets, which can reverberate into equities. Its under 4200 with the loss of positive gamma that any negative energy news would “matter more” to markets, as the S&P would no longer have positive gamma support.

Finally we wanted to share the latest data from our OCC analysis.  This chart reflects the activity (buy/sell to open vs buy/sell to close) in Index options. Last week Index traders seemed to shift to net sellers of calls, and net buyers of puts. Unfortunately we are not given any insights into the specific products (ie SPX, NDX, VIX), but what stands out is this appears to be the highest level of net index put buying since our data started in late 2018.

Model Overview:

4100-4250 is the range into May OPEX. Gamma is currently high which should lead to low volatility. As long as markets are >4170 we anticipate a low volatility market which grinds higher.