Futures are holding 4491 after a quiet overnight session. Our models produced a similar output to yesterday: 1.17% max move (open/close) with resistance at 4500 and 4528. Support lies at 4480 and 4425.
4500 is a critical level for the S&P. As you can see in the chart below, at strikes >=4500 the size of the call gamma bars increases substantially. It is call gamma that supplies volatility-suppressing hedging flow and an equity tailwind.
In that same light we do see 4500 as something of a resistance area, and the primary equity inflow will need to transition from short covering to real buyers to puncture this area.
Another way to look at this is in the percentile rank below. Here, for each strike we show how large the current gamma is vs historical data. You can see that above 4500 the call gamma (blue) at various strikes increases materially. The gamma at many put strikes(red) remains quite large, with several of the strikes at 4300 – 4600 ranking in the top 3-4% of historical size (data starts early ’21).
To these point above, the data from yesterday shows that there were some in-the-money call closures in the S&P, but not a material change in puts. Further we note our HIRO indicator (which measures options deltas traded in real time) showed that call buying (i.e. positive delta call trading) was fairly light, up until 3:30ET wherein there was a surge in call buying activity (likely involving 0DTE flow).
Below is the HIRO snapshot for the QQQ which shows chunky put selling (blue line) and no material call buying (orange line). We find this interesting given the magnitude of the rally, although we did see call buying in many single stocks.
We therefore view this move as primarily short covering (i.e. puts closed = dealers buy back short stock), which makes the rally unstable. Closing above 4500 likely changes the mechanics of dealer flow from negative to positive gamma, which when combined with a decline in implied volatility[IV] could add to an equity tailwind.
However, from an options perspective there does not appear to be anything to materially support the markets below. As it does seem that puts have been closed (or at least “weakened” through time & IV reduction), a subsequent selloff could be more violent, and have a lower, lower bound.
Recall that post-OPEX we felt that the market was too well hedged to continue selling much lower, but that “hedge” has now decayed.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4491 | 4492 | 449 | 14883 | 363 |
| SpotGamma Imp. 1 Day Move: | 1.17%, | Est 1 StdDev Open to Close Range (±pts): 53.0 | |||
| SpotGamma Imp. 5 Day Move: | 5.69% | 4437 (Monday Ref Px) | Range: 4185.0 | 4689.0 | ||
| SpotGamma Gamma Index™: | -0.24 | -0.61 | -0.11 | 0.01 | -0.08 |
| Volatility Trigger™: | 4480 | 4410 | 449 | 14725 | 360 |
| SpotGamma Absolute Gamma Strike: | 4600 | 4400 | 450 | 14800 | 350 |
| Gamma Notional(MM): | $-326 | $-124 | $-441 | $1 | $-411 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4555 | 4523 | 0 | 0 | 0 |
| Put Wall Support: | 4200 | 4200 | 425 | 13500 | 350 |
| Call Wall Strike: | 4700 | 4700 | 460 | 14800 | 400 |
| CP Gam Tilt: | 0.94 | 0.93 | 0.82 | 1.14 | 0.68 |
| Delta Neutral Px: | 4536 | ||||
| Net Delta(MM): | $1,469,689 | $1,558,424 | $162,418 | $39,529 | $93,972 |
| 25D Risk Reversal | -0.1 | -0.1 | -0.09 | -0.1 | -0.09 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4700, 4600, 4500, 4450] |
| SPY: [460, 450, 445, 440] |
| QQQ: [375, 365, 360, 350] |
| NDX:[16250, 15300, 15000, 14800] |
| SPX Combo (strike, %ile): [4479.0, 4578.0, 4447.0, 4425.0, 4528.0] |
| SPY Combo: [448.56, 458.46, 445.41, 443.16, 453.51] |
| NDX Combo: [14735.0, 14750.0] |
