Futures have increased to 4230. Our models again look for volatility to remain elevated today, with an S.G. est move of 1.5% (open/close). Resistance lies at 4260 then 4300. Support shows at 4200 then 4170.
This is obviously a big week with several catalysts, the primary being Wednesday’s FOMC and Friday’s OPEX. We’ve been viewing this sequence of events as bullish in the interim due to:
- A reduction of implied volatility following the FOMC meeting
- Large numbers of put options expiring on Friday
While see these events as bullish , there is some path dependency here.
In regards to the FOMC, we generally believe the market is currently carrying a fairly heavy “event premium” due to concerns around monetary policy. While this is certainly a more tenuous environment for the Fed, we think that more clarity will arrive through Wednesdays statement. Assuming the Fed doesn’t throw any curve balls, we’d look for implied volatility to reduce into Thursday or Friday.
If the Fed does spark a rally, the puts tied to 3/18 expiration may be crushed. These flows (vanna & charm) can help push a strong rally into OPEX. Given this scenario we mark 4500 as an overhead target for next week.
Conversely, if the Fed does come off as less supportive of equity markets, implied volatility may jump. This plays into an equities market that is put-heavy. Combined, this could pressure the markets lower into Monday with the 4050 area being key support (akin to end of Jan scenario).
As many of our long term readers know, its the Monday after OPEX which often corresponds to interim market lows, and therefore we think markets could stage a short covering rally towards the middle of next week.
The destination of this path leads ultimately towards the clearance of a lot of put options (>25% of S&P delta expiring). We’ve stated several times that we believe equities have had lower volatility (relative to other assets) due to these large hedges. The expiration and/or covering of a large swath of these put hedges may ultimately place the market back into an “underhedged” position. This, and the risk associated with it, is something we are watching for into the end of March.
Finally, please note tomorrow AM is the VIX expiration. This may buoy markets today as the VIX Index & VIX future align. We also flag VIX-exp as there may be some impactful “position jockeying” into tomorrows AM settlement.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4224 | 4262 | 423 | 13327 | 324 |
| SpotGamma Imp. 1 Day Move: | 1.52%, | Est 1 StdDev Open to Close Range (±pts): 64.0 | |||
| SpotGamma Imp. 5 Day Move: | 3.52% | 4224 (Monday Ref Px) | Range: 4076.0 | 4373.0 | ||
| SpotGamma Gamma Index™: | -1.64 | -1.37 | -0.39 | -0.02 | -0.18 |
| Volatility Trigger™: | 4350 | 4395 | 433 | 14000 | 345 |
| SpotGamma Absolute Gamma Strike: | 4300 | 4300 | 420 | 14075 | 320 |
| Gamma Notional(MM): | $-666 | $-636 | $-1,433 | $-2 | $-1,056 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4420 | 4427 | 0 | 0 | 0 |
| Put Wall Support: | 4100 | 4100 | 420 | 13000 | 320 |
| Call Wall Strike: | 4500 | 4600 | 455 | 14075 | 360 |
| CP Gam Tilt: | 0.61 | 0.69 | 0.53 | 0.81 | 0.35 |
| Delta Neutral Px: | 4364 | ||||
| Net Delta(MM): | $1,642,354 | $1,836,492 | $183,719 | $31,341 | $98,434 |
| 25D Risk Reversal | -0.08 | -0.11 | -0.09 | -0.08 | -0.08 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4400, 4300, 4200, 4000] |
| SPY: [430, 420, 410, 400] |
| QQQ: [330, 325, 320, 315] |
| NDX:[14075, 14000, 13500, 13000] |
| SPX Combo (strike, %ile): [(4260.0, 8.03)] |
| SPY Combo: [412.98, 423.15, 418.06, 433.31, 428.23] |
| NDX Combo: [13140.0, 12940.0, 13353.0, 13553.0, 13020.0] |
