Futures are down sharply to 4600. This shift lower pushes the market into a negative gamma environment, which indicates there is a likely a lot more volatility today. We see resistance at 4650, then 4700. Support is at 4600 and 4575.
We think its likely many traders closed put positions Friday afternoon (as shown below) in order to avoid paying the holiday theta bill. That short covering likely led to the late day rally. As a result we think this mornings futures prices have simply “mean reverted” rather than sold to reflect some new information.
If you look at the total S&P gamma complex below, you can see that the gamma at strikes between 4600 & 4700 is very small. As a result we see the S&P 500 price as very “fluid” in through this range. A bull case can only be made if the S&P regains 4700. To the downside, material net put gamma initiates below 4600, but we think it would take a real push (i.e. large implied volatility[IV] spike) to break 4575.
The movement of IV continues to interest us. There have been several bouts of selling in the S&P this month, but the IV term structure fails to shift into backwardation. This signals low demand for short term protection (i.e. put buying). We remained concerned that should that protection catch a bid, it would initiate a selloff from this volatile, negative state (new puts bring more dealer deltas for sale, which also shifts IV higher).
On that point, we note the VIX structure is threatening to invert this morning, with S&P futures revisiting January lows. If the VIX continues to shift higher, that indicates an increase in hedging demand which could result in lower S&P prices. Conversely a decline in VIX/IV could add a tailwind for stock prices.
Finally, we wanted to comment on the large single stock expiration (writeup here). We do think that the expiration could lead to selling in select single stocks through early next week. Should selling materialize, it may be interesting to play post-OPEX mean reversion knowing that the catalyst (expiration) has been removed.
Brent will be discussing this OPEX live with Imran Lakha at 1PM EST, today. Join here.
We’ll be updating the expiration spreadsheet tomorrow AM, for subscribers only.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4634 | 4646 | 462 | 15437 | 380 |
| SpotGamma Imp. 1 Day Move: | 1.36%, | Est 1 StdDev Open to Close Range (±pts): 63.0 | |||
| SpotGamma Imp. 5 Day Move: | 4.02% | 4646 (Monday Ref Px) | Range: 4460.0 | 4834.0 | ||
| SpotGamma Gamma Index™: | -0.39 | -0.39 | -0.18 | 0.02 | -0.11 |
| Volatility Trigger™: | 4650 | 4650 | 465 | 15725 | 380 |
| SpotGamma Absolute Gamma Strike: | 4700 | 4700 | 470 | 15925 | 380 |
| Gamma Notional(MM): | $-515 | $-420 | $-1,130 | $-2 | $-543 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4703 | 4681 | 0 | 0 | 0 |
| Put Wall Support: | 4600 | 4600 | 455 | 15000 | 370 |
| Call Wall Strike: | 4800 | 4800 | 480 | 15925 | 400 |
| CP Gam Tilt: | 0.91 | 0.79 | 0.68 | 0.86 | 0.66 |
| Delta Neutral Px: | 4576 | ||||
| Net Delta(MM): | $1,476,319 | $1,480,381 | $169,853 | $37,089 | $99,553 |
| 25D Risk Reversal | -0.07 | -0.07 | -0.07 | -0.09 | -0.08 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4700, 4650, 4625, 4600] |
| SPY: [470, 465, 460, 455] |
| QQQ: [390, 385, 380, 375] |
| NDX:[16250, 16000, 15925, 15500] |
| SPX Combo (strike, %ile): [4770.0, 4575.0, 4724.0, 4524.0, 4747.0] |
| SPY Combo: [478.2, 458.68, 473.55, 453.57, 475.87] |
| NDX Combo: [15763.0, 15052.0, 15253.0, 15454.0, 15129.0] |
