Futures are at 4660, up from overnight lows of 4640. The move lower yesterday pushed the S&P into a negative gamma position, and with that we look for a high volatility session. 4700 is major resistance, with support at 4645.

The EquityHub model shown below also shows rapid shifts in gamma >4665 and <4645. Therefore we see an S&P break above 4665 leading to a quick reversion back into 4700. A break below 4645 likely leads to a test of the 4590 area. Again we watch implied volatility (i.e. VIX) as a confirmation signal – a break lower/higher in IV would add fuel to a rally/selloff.

The flows yesterday were fairly neutral in the S&P & QQQ’s – we saw most of the options based pressure coming from call selling in single stocks. This is similar flow to what we saw earlier this month wherein our index models didn’t show heavy hedging, but there was strong call selling in the tech leaders. This was sparked by concerns around interest rate increases, and that led to sector rotation (out of tech into financials). Based on this we think a lot of the flow was driven by tech stock selling from more macro focused players.

In other words, it was single stock selling that dragged down the indices. We never saw the S&P term structure shift to a backwardated state, which would indicate major hedging demand.

In the last several sessions interest rate concerns eased which led to a quick rally in many of those oversold names. However, with yesterdays Fed rate comments the tech & meme selling resumed in a similar fashion to early Jan: tech selling, but little index hedging.

Should that index hedging demand increase, it would likely lead to a large spike in implied volatility and a large decline in markets.

We’ve also made several comments in regards to 1/21 Jan OPEX being of significant size. This OPEX is not a major index event, but holds very large deep in the money single stock positions. As shown in the chart below, we show something north of $125bn in notional call deltas expiring. Initially, one would assume that this would lead to single stocks coming for sale into and around 1/21 OPEX. For this reason we’ve been watching for volatility into and around OPEX.

A full analysis will be done today, but given the volatility we’re flagging this for you all today.