Futures checked lower to 4010 overnight, but have rebounded to 4060. Markets are set to open under a large negative gamma regime, and as such we are looking for substantial volatility. Our major support level is 4000, with resistance at 4110. We must lend attention to “vanna” today as options are quite sensitive to this elevated implied volatility. If the VIX breaks down today, we would look for that to fuel a rally. Conversely any shift higher in the VIX likely means a test of 4000.
We’ve got our eye on the chance for a strong bounce here, as that violent shift higher in implied volatility reverts and traders seek to close/monetize their put hedges. We also see 4k as both a very large options level, and a psychologically important level (people love big round numbers). Based on this we think the downside for today is limited.
Below we’ve posted the vanna models in the QQQ/SPY. The comparison shows that the black delta exposure line tails up in SPY as we break over 410, whereas in QQQ the black line remains flat. The higher this black line goes, the more futures need to be sold for hedging. Therefore, this SPY chart is indicating that dealer hedging shifts to light selling as SPY goes >410 but are still neutral/small buyers in QQQ >320. This makes sense as QQQ has held a large put regime for some time (if you’re new to this vanna model, go here).
Additionally, we recommend checking out the vanna model, and clicking through the dates under the title. You can see how the skew of this model has changed over the last several days, as volatility has spiked.
Looking forward, if we do get a rally on implied vol crush & puts being closed, that is important. This serves to clear out hedges, which can add to instability going forward. In other words, markets are currently hedged, but a bounce higher removes those hedges. This means that if markets once again weaken, they’ll have less support. We think this is a key part of the mechanics to the “dead cat bounce”, and something we will be keeping a close eye on for today.
Markets are under a negative gamma regime. Look for high volatlity, with large swings in markets. 4000 is key support, with major resistance at 4200 into 5/21 OPEX.
|SpotGamma Proprietary Levels||Latest Data||Previous||SPY||NDX||QQQ|
|SpotGamma Imp. 1 Day Move:||1.63%,||66.0 pts||Range: 3977.0 | 4109.0|
|SpotGamma Imp. 5 Day Move:||4231||7.21%||Range: 3926.0 | 4536.0|
|SpotGamma Gamma Index™:||-0.89||-0.13||-0.30||-0.07||-0.17|
|Volatility Trigger™(ES Px):||4110||4175||413||13475||330|
|SpotGamma Absolute Gamma Strike:||4000||4000||400||12850||330|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level(ES Px):||4156||4165||0||0||0|
|Put Wall Support:||4000||4100||405||12500||310|
|Call Wall Strike:||4200||4250||420||13750||340|
|CP Gam Tilt:||0.76||0.62||0.65||0.49||0.47|
|Delta Neutral Px:||3992|
|25D Risk Reversal||-0.11||-0.09||-0.11||-0.09||-0.09|
|Top Absolute Gamma Strikes:|
|SPX: [4150, 4100, 4000, 3900]|
|SPY: [410, 405, 400, 395]|
|QQQ: [330, 325, 320, 310]|
|NDX:[12850, 12500, 11850, 11800]|
|SPX Combo: [3982.0, 4011.0, 4035.0, 4039.0, 3934.0]|
|NDX Combo: [12683.0, 13098.0, 12890.0, 13305.0, 12968.0]|
Gamma Expiration Tool