Futures are flat to last nights lows near 4340 – which is up from overnight lows of 4270. Volatility should remain today, and should continue to do so unless the market can recover 4500. Resistance shows at 4400. Support shows at 4278 and 4200.
As shown below, the positions below 4300 are relatively small, but dominated by puts. The bulk of total positions (and therefore gamma) lies at strikes >4300. This is why our gamma curves flatten out near 4200, and why we feel the selloff is “stretched” from an options perspective.
There was a slight reduction in S&P gamma, primarily due to Wednesdays expiration. There was no real impact from this – in fact we do not currently register a significant options expiration until 2/18. As a result the large put-driven negative gamma can only be removed through a market rally and/or decline in implied volatility.
To this point, we had given edge to a reduction in implied volatility[IV] after the FOMC event. Interestingly, IV was being offered into the FOMC itself, with the S&P hitting recent 4450 highs at 2pm. The market did decline sharply after the FOMC, but we saw little options flow.
Our position has been, and remains that if the market does catch a bid, and puts/IV comes for sale that there will be a significant delta/vanna-induced rally into 4500.
Determining the downside is a bit trickier. If macro flows come for sale, that could clearly push markets lower. While we don’t detect much flow from a gamma perspective, an increase in IV (ie VIX) would likely lead to some additional selling flows from options dealers.
If markets simply stall in and around here, we think that results in a reduction in implied volatility, which adds a tailwind to equity prices.
Our bottom line is this: markets need to start selling below 4300 in order for implied volatility to hold its bid. A pause in markets, and/or a rally should lead to a reduction in volatility and a relief rally. Any rally we would consider unstable until/unless 4500 is recovered.
As a reminder, Brent will be live with Darius Dale of 42 Macro today at 4:30 PM. Darius will be presenting his post-FOMC macro views, and SpotGamma will analyzing the options flows around these macro shifts.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4340 | 4280 | 441 | 14182 | 344 |
| SpotGamma Imp. 1 Day Move: | 1.37%, | Est 1 StdDev Open to Close Range (±pts): 59.0 | |||
| SpotGamma Imp. 5 Day Move: | 3.7% | 4384 (Monday Ref Px) | Range: 4223.0 | 4547.0 | ||
| SpotGamma Gamma Index™: | -1.43 | -0.26 | -0.32 | -0.01 | -0.13 |
| Volatility Trigger™: | 4590 | 4575 | 454 | 14775 | 366 |
| SpotGamma Absolute Gamma Strike: | 4300 | 4000 | 440 | 14800 | 350 |
| Gamma Notional(MM): | $-747 | $-157 | $-808 | $-1 | $-726 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4537 | 4646 | 0 | 0 | 0 |
| Put Wall Support: | 4200 | 4000 | 425 | 13500 | 350 |
| Call Wall Strike: | 4700 | 5000 | 480 | 14800 | 400 |
| CP Gam Tilt: | 0.62 | 0.66 | 0.69 | 0.87 | 0.44 |
| Delta Neutral Px: | 4518 | ||||
| Net Delta(MM): | $1,565,790 | $660,880 | $190,146 | $36,444 | $103,949 |
| 25D Risk Reversal | -0.12 | -0.12 | -0.1 | -0.14 | -0.13 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4500, 4400, 4300, 4000] |
| SPY: [450, 440, 430, 425] |
| QQQ: [360, 355, 350, 340] |
| NDX:[15000, 14800, 14000, 13500] |
| SPX Combo (strike, %ile): [4278.0, 4226.0, 4325.0, 4252.0, 4334.0] |
| SPY Combo: [428.61, 423.41, 433.38, 426.01, 434.25] |
| NDX Combo: [14399.0, 13988.0, 14186.0, 13775.0] |
