Futures have pushed a bit higher to 4525. Our volatility estimate dropped another notch with yesterdays rally into the close. We are now looking for an open/close range of just 0.67%, vs ~0.9% the past several sessions (and ~1.4% last week!). Support lies at 4500 and resistance is at 4535 and 4562.
What’s admittedly taken us a bit by surprise is the destruction of ultra-short dated implied volatility. Below is the VIX term structure, and you can see how quickly its gone from strong backwardation (blue) to contango (black). This reversal makes sense given the passing of FOMC & OPEX. But, while the VIX is currently near 21 (which implies 1.3% daily moves), the SPX straddle expiring today is just ~$34 (~0.75% move). Our gamma based volatility forecast for today is only 0.67% which suggests this straddle is fairly valued.
While the S&P was “unpinnable” the last several weeks, it hit 4500 and stopped dead. You can see this in the chart below, with the 5 day realized volatility metric (2nd chart, red line). Its also apparent in the distribution of recent returns (red bars, bottom chart) vs last 30 days (blue). This stall in price action has brought out sellers of weekly options and “risk on” via short dated call buying in single stocks (ex: TSLA, NVDA, GME). This type of flow in the weeklies was absent for all of March, but has flipped back on suggesting a large, speculative risk appetite.
There is still certainly geopolitical risk, and we think that leads to traders still wanting to hold some longer dated volatility. Therefore the steep contango likely remains. However, the demand to sell “this weeks” options was strong and supports markets. We also saw call open interest in the S&P500 coming in the 4500-4550 range indicating this area just north of 4500 is now where the options “fair value” point is. This syncs with our vanna models too, which are now neutral (compared to a few days ago).
Its also of note that while the Call Wall strike for SPY holds at 450, the Call Wall for SPX is up at 4600. 4600 is the strike with the largest call interest, and most net positive gamma. If the market was >4600 we’d classify it as overbought, but current SPX prices seems to coincide with the “fair value” idea above.
So, while we still see the air pocket down below 4500, this appears to be a rally through attrition (declining vol & passing time).
|SpotGamma Proprietary Levels||Latest Data||Previous||SPY||NDX||QQQ|
|SpotGamma Imp. 1 Day Move:
Est 1 StdDev Open to Close Range
|0.67%,||(±pts): 30.3||VIX 1 Day Impl. Move:1.36%|
|SpotGamma Imp. 5 Day Move:||2.26%||4438 (Monday Ref Px)||Range: 4338.0 | 4539.0|
|SpotGamma Gamma Index™:||0.62||-0.07||0.01||0.03||-0.03|
|SpotGamma Absolute Gamma Strike:||4500||4400||450||14225||350|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||4494||4475||0||0||0|
|Put Wall Support:||4300||4100||440||13000||325|
|Call Wall Strike:||4600||4600||450||14225||360|
|CP Gam Tilt:||1.22||0.95||0.95||1.61||0.82|
|Delta Neutral Px:||4440|
|25D Risk Reversal||-0.08||-0.09||-0.07||-0.05||-0.07|
|Key Support & Resistance Strikes:|
|SPX: [4600, 4510, 4500, 4400]|
|SPY: [450, 448, 445, 440]|
|QQQ: [360, 358, 355, 350]|
|NDX:[15000, 14500, 14225, 14000]|
|SPX Combo (strike, %ile): [4612.0, 4562.0, 4661.0, 4584.0, 4535.0]|
|SPY Combo: [459.12, 454.16, 464.08, 456.41, 451.45]|
|NDX Combo: [14780.0, 14367.0, 14692.0, 14987.0]|