Informe SG Levels

Futures are lower this morning, down to 4330. With that shift lower, our volatility estimate increases sharply to 1.8% (1 stdev open/close move). Resistance is at 4350 & 4400, with support showing at 4300 & 4275.

Even though we have this volatile setup, IV has remained somewhat contained. Below we’ve plotted the closing level of IV for short dated SPY options. As you can see the IV has yet to breach that of late January despite the additional geopolitical issues. The term structure remains in a backwardated state suggesting short dated puts remain in high demand.

As long as the S&P holds 4300, we would anticipate volatility to remain under recent highs. For today, we give an edge to markets holding>=4300. However, as you can see below, underneath 4300 strikes primarily contain put gamma. This infers that larger directional moves, and a spike in IV triggers on a breach of that 4300 line.

Further, while traders may step up to sell puts that expire today, we doubt traders will want to enter this weekend short volatility. Therefore any rally taking place today we’d classify as short covering, and subject to reversal on Monday.

Zooming out, our core views remain the same of that from the last several notes. We anticipate 4400-4500 remaining as stiff resistance into FOMC. Because of the large negative gamma and high implied volatility[IV], the downside remains vulnerable to sharp “steps” lower, with 4275 & 4180 showing as key stops. 4000-4100 is our ultimate “lower bound” into that March 16-18th time frame.