Informe SG Levels

Futures have rallied sharply to 4456 on news that Russia is returning some troops. While we aren’t qualified to comment on geopolitical events, we would state that headlines “matter more” when gamma is sharply negative. On that, our volatility estimate is in line with yesterday at 1.37% (1 stdev move open/close). Resistance is at 4500 & 4520.  Support lies at 4450 & 4400.

The current gamma buildup seems heaviest at 440SPY/4400SPX and 450SPY/4500SPX. In this range (4400-4500) the market is quite fluid, and driven by negative gamma/vanna flows. While the headline was enough to enter the slipstream higher; a reversal back down is just as easy.

Similarly, into Friday we see 350 & 360 in QQQ as the most prominent strikes.

However, as we approach Fridays OPEX we think the trading range should tighten back down around the 4500 area. Through tomorrow an extended rally fueled by declining implied volatility[IV] & put decay could push markets back up into the 4520-4550 area, which is where we noted heavy resistance last week.

Currently we measure ~25% of SPY/SPX/QQQ gamma expiring which should remove some net negative gamma into Monday. As this is a put heavy expiration, the decay and closing of these puts could keep a tailwind in for markets through Friday, but it does remove some “lower bound” support (currently seen at 4370) into end of month. Recall this lower bound idea is that essentially markets are currently too well hedged to have a material decline.