Futures are up slightly to 4540. We look for volatility to remain high, with an SG Est 1 Day Move of 1.5%. We see support at 4517, then 4500. Resistance is at 4550 & 4600.
There was very large negative delta trading across the S&P & QQQ, which when combined with the implied volatility [IV] spike would suggest high put demand. However, despite yesterdays large drawdown, our updated gamma levels shrunk some. This suggests a lot of the sessions put flow was tied to trading in the 0DTE Wednesday expiration. In other words, we think it was “day trading” that expanded volatility yesterday, not something more fundamental. It does seem single stock flows added to volatility, too.
The shift lower in markets over the past several days has increased the concentration of put-heavy gamma tied to Fridays OPEX. We now see >=30% of S&P, and >=20% of QQQ rolling off on 1/21. You can see below that as long as the S&P is <=4600 the expiration brings a reduction in negative gamma (via the closure of puts). We’d consider this Index expiration generally supportive of S&P prices.
On the single stock side we have seen a reduction in positive deltas which is a function of both calls being closed, and a general decline in stock prices (lower stock prices reduce call values).
For our basket of largest stocks, the delta (net) reduction has gone from ~$120bn last Friday (2nd chart), to $67bn today (top chart). A great deal of this remains in TSLA (est $20bn). Our view is that this reduction in delta has been pressuring markets.
Given all of the above, we still expect traders to hold hedge protection through Wednesdays FOMC. Markets still have to contend with a continued reduction in single stock deltas, which foreshadows more “volatile chop” into 1/26.
For next week we feel that the clearing of Fridays OPEX positions (Index puts + long call hedges) could set up a bullish move post FOMC – assuming Powell doesn’t upset expectations. The passing of FOMC often leads to a further reduction in “event hedges” and a reduction in implied volatility (leading to supportive vanna flows).
An updated stock OPEX spreadsheet can be found here.
|SpotGamma Proprietary Levels||Latest Data||Previous||SPY||NDX||QQQ|
|SpotGamma Imp. 1 Day Move:||1.58%,||Est 1 StdDev Open to Close Range (±pts): 72.0|
|SpotGamma Imp. 5 Day Move:||4.02%||4646 (Monday Ref Px)||Range: 4460.0 | 4834.0|
|SpotGamma Gamma Index™:||-1.68||-1.39||-0.40||-0.07||-0.16|
|SpotGamma Absolute Gamma Strike:||4600||4600||450||15000||370|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||4680||4697||0||0||0|
|Put Wall Support:||4450||4550||450||15100||360|
|Call Wall Strike:||4700||4800||470||15550||400|
|CP Gam Tilt:||0.64||0.55||0.54||0.58||0.51|
|Delta Neutral Px:||4588|
|25D Risk Reversal||-0.07||-0.08||-0.08||-0.08||-0.08|
|Key Support & Resistance Strikes:|
|SPX: [4700, 4600, 4550, 4500]|
|SPY: [460, 455, 450, 445]|
|QQQ: [375, 370, 365, 360]|
|NDX:[15300, 15200, 15100, 15000]|
|SPX Combo (strike, %ile): [4467.0, 4517.0, 4567.0, 4417.0, 4530.0]|
|SPY Combo: [443.62, 448.59, 453.56, 438.65, 449.94]|
|NDX Combo: [15294.0, 14870.0, 15082.0, 15188.0, 15097.0]|