Informe SG Levels

Futures were quiet overnight, holding just above 4600. Volatility is expected to remain muted again for today, with 460SPY/4600SPX Call Walls being the major level(s) on the board. We see a small support line at 4575, with 4550 being more material support.

As with yesterday, should the 460SPY/4600SPX Call Wall be breached to the upside, we’d consider the market overbought and look for mean reversion back below that area.

The options market continues to be price in low volatility, in sync with our models. Today’s SPX at-the-money straddle is trading near $27.(0.58%) Obviously the VIX was battered yesterday, hitting an intraday low of 18.67. This suggests that the volatility premium in short dated options is de minimis which reduces vanna fuel.

To this point our vanna models now show implied volatility as a drag on SPX movement. This is implied by the “left tilt” of this model as shown below. As we recently discussed, since February we’ve had the mirror opposite plot which was the result of put-heavy markets. Markets with thick put positions are quite sensitive to implied volatility, the change of which is inversely correlated to market prices.

While we look for little happening today, we do have back-to-back expirations Thursday & Friday. This is not much of an event for the SPX, but we see over 50% of SPY gamma being removed. This could reduce the grip of gamma on volatility a bit, but we don’t currently see it as material.

For now, any selling we think would appear more as “consolidation” rather than heavy declines. We do not see more market upside until/unless those 460/4600 Call Walls shift higher.