Informe SG Levels

Futures have pushed higher to 4130 overnight.  We mark SPX, SPY, QQQ and IWM all in negative gamma territory. This level of gamma in the SPX equates to a 1.26% est move on the day. Accordingly we mark 4100 as critical support, a large Combo strike at 4136, and 4165 overhead resistance levels.  Our models also show roughly 13% of SPX gamma, and 20% of SPY & QQQ gamma expiring on todays close.

Looking at the model below for QQQ/SPY you can see that this expiration may put a bit of a bid in the market. The fact that the blue “T+1” (i.e today + 1 day) delta exposure lines are below todays exposure (red line) forecasts that dealers have less deltas to hedge tomorrow (aka Monday), and can therefore buy back some short futures into Monday. Now obviously this can change shape throughout the course of the day, but it backs this idea that if the SPX holds 4100, bulls can rest a bit easier.

As you can see in the chart below, there are 2 zones forming here: 4000-4100 and 4100-4200.  What you  may notice is a fairly “well balanced” call & put gamma from 4100-4200 (red box).  This interest should serve to suppress volatility while markets are >=4100, but the “void” from 4000-4100 we highlighted earlier this week remains in play.

As we push toward the large May monthly OPEX next week, its likely that markets solidify around one of these large round levels: 4000, 4100, 4200. With gamma negative, bears still have a chance to generate some downside momentum, but “charm” (aka delta decay) adds an increasingly strong tail wind as we get closer to 5/21.

Lastly, we’ve been monitoring the distribution of gamma through our EquityHub. Its produced some interesting levels that markets have been respecting. What this chart is essentially showing is the rate of change of gamma.  Where the chart shows a “plateau” has lined up with areas in which the SPX price has stalled or changed direction. As you can see there is a sharp change from 4100->4050 which syncs with that “void” idea posted above. We also note this inflection point above 4145 where the “area” of the chart fades toward zero. This is because of the lack of open interest/gamma >4200.

Model Overview:

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.