Futures are near 4335, up from overnight lows of 4249. Our models look for continued volatility with resistance at 4400, and support at 4300 and 4270.
Our current views remain in line with that of Friday. We see little reason for “risk on” and a large rally until there is clarity on interest rates (latest possible date FOMC on March 15th). Geopolitical headlines are certainly taking center stage at the moment, but we feel their impact is being exacerbated by the large negative gamma + elevated implied volatility[IV].
We opine on this simply because its through this view that we feel any rally is simply short covering (dealers covering via negative gamma/put closures(delta)/declining IV (vanna)). Therefore rallies can reverse with great speed, as the feedback loop reverses (dealers short via negative gamma/put buying/increasing IV). As IV increases, the speed of these feedback loops increases.
To this point, if you think about the +50 handle rally on Friday, our HIRO indicator (real time options flow) saw that rally was spurred on through traders selling put options. This implied dealers could buy back futures. This forced covered spurs on second order effects (gamma/vanna). This short cover rally faded quickly at 3pm ET.
Todays updated open interest data confirmed puts were closed (inset) as we saw net put closures for all strikes in the SPY >435 and SPX>4400.
Here we want to “zoom out” of the intraday feedback loops. Based on our EquityHub model posted below, we can see how the rate of SPX gamma changes below. The “nodes” which appear as small peaks, indicate where there may be a large change in S&P gamma which we believe signals material change in risk (i.e. hedging points). Think of it like a hedging band – at the strikes we’ve printed on the chart we believe support and resistance forms. We typically watch this chart during periods of high volatility, as it has showed great accuracy in previous drawdowns.
We post this chart because we think it best depicts the large amount of gamma at the 4000 strike. You can see how large the node is just under 4050, and we believe this is a material, longer term support. Strictly through an options positioning lens, it would take a material change in policy (i.e. surprise rate hike) and not just narrative to punch through that level.
Should concrete, positive new emerge from the Ukraine then we could see a strong multi-day rally into the 4500 area. It is at/above this line wherein positive gamma forms (dealers start selling into rallies), and we consider that major resistance.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4277 | 4371 | 425 | 13664 | 341 |
| SpotGamma Imp. 1 Day Move: | 1.37%, | Est 1 StdDev Open to Close Range (±pts): 59.0 | |||
| SpotGamma Imp. 5 Day Move: | 5.8% | 4371 (Monday Ref Px) | Range: 4118.0 | 4625.0 | ||
| SpotGamma Gamma Index™: | -1.35 | -1.41 | -0.34 | -0.01 | -0.18 |
| Volatility Trigger™: | 4520 | 4520 | 441 | 14050 | 355 |
| SpotGamma Absolute Gamma Strike: | 4400 | 4400 | 440 | 14075 | 350 |
| Gamma Notional(MM): | $-869 | $-553 | $-2,199 | $-1 | $-998 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4504 | 4499 | 0 | 0 | 0 |
| Put Wall Support: | 4300 | 4300 | 425 | 13000 | 340 |
| Call Wall Strike: | 4600 | 4600 | 460 | 14075 | 400 |
| CP Gam Tilt: | 0.65 | 0.69 | 0.32 | 0.83 | 0.37 |
| Delta Neutral Px: | 4453 | ||||
| Net Delta(MM): | $1,507,503 | $1,540,453 | $169,383 | $30,239 | $94,427 |
| 25D Risk Reversal | -0.1 | -0.1 | -0.1 | -0.09 | -0.1 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4500, 4400, 4300, 4000] |
| SPY: [440, 435, 430, 425] |
| QQQ: [360, 350, 340, 330] |
| NDX:[14500, 14075, 14000, 13000] |
| SPX Combo (strike, %ile): [4234.0, 4183.0, 4282.0, 4162.0, 4260.0] |
| SPY Combo: [429.45, 424.24, 434.23, 422.07, 432.06] |
| NDX Combo: [13633.0, 14030.0, 13757.0, 13428.0, 13825.0] |
