Futures have shifted lower to 4465. We see a light negative gamma reading in the SPX, however SPY & QQQ gamma is materially negative. This suggests that the volatility in todays session could be higher than that of what the SPX Implied Move indicates: 0.84% (open/close). We see resistance at 4500 & 4520 (SPY 450 equivalent). Support lies at 4465, 4450 and then 4420 (SPY 440 equivalent).
In addition to options supporting volatility, we have a holiday shortened week which may offer lower liquidity.
Notionally speaking, the large positions are in SPY options. As shown below there is a lot of interest (both calls & puts) at the 450 level, with 440 puts also showing large size. The put size is 99th percentile, with 450 call size at 97th. If markets do turn south from here, we’d look for SPY440 Put Wall as initial support.
To the upside, call positions for SPX/SPY remain pathetic. Shown below is the percentile ranking for SPY gamma size, and you can see that puts dominate (SPX here). Puts bring volatility to equities, and while the SPX/SPY does feature mostly puts, the total size is not particularly notable relative to historical standards. There is not much conviction on either the put or call size, whereas back in early march we had several 100% percentile put strikes.
Due to markets being closed Friday, Thursday is OPEX wherein we show~20% of the total S&P500 gamma expiring. The decay and expiration of put positions we generally view as supportive of markets, as is the case here. While these put positions are not particularly large, their decay, along with the decline of implied volatility[IV] (i.e. VIX) can offer a light tailwind. Further, the center of attraction for this current market is that 4500-4520 (SPY 450) area due to the high gamma in that area.
Its important to note here that there is a relatively decent amount of gamma expiring, but not delta. Large deltas expiring is what drives major moves into OPEX, as deep in the money options positions are closed. Because its mainly gamma positions expiring, we view this OPEX more as a “pinning” force, rather than a large, directional “March” type move.
Finally, despite giving edge to the scenario above, we continue to flag elevated risks that will likely remain through OPEX. Markets are in a negative gamma position, with elevated IV. We think that the market remains under hedged, and a sharp downside move could set a “trap”. This trap is the reflexive feedback loop that kicks in wherein traders buy puts which adds to dealers negative gamma position. They hedge by shorting futures, which drives markets lower. This brings more demand for puts, and higher IV, which leads to dealers needing to short incrementally.
|SpotGamma Proprietary Levels||Latest Data||Previous||SPY||NDX||QQQ|
|SpotGamma Imp. 1 Day Move:
Est 1 StdDev Open to Close Range
|0.84%,||(±pts): 38.0||VIX 1 Day Impl. Move:1.34%|
|SpotGamma Imp. 5 Day Move:||1.98%||4545 (Monday Ref Px)||Range: 4456.0 | 4636.0|
|SpotGamma Gamma Index™:||-0.09||0.0||-0.28||0.04||-0.17|
|SpotGamma Absolute Gamma Strike:||4500||4500||450||14225||350|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||4517||4518||0||0||0|
|Put Wall Support:||4300||4300||440||14000||340|
|Call Wall Strike:||4600||4600||460||14225||360|
|CP Gam Tilt:||0.97||0.85||0.61||1.5||0.52|
|Delta Neutral Px:||4465|
|25D Risk Reversal||-0.07||-0.08||-0.08||-0.08||-0.08|
|Call Open Interest||4,211,273||5,254,437||47,168||3,206,247|
|Put Open Interest||8,534,869||11,881,134||51,225||6,835,046|
|Key Support & Resistance Strikes:|
|SPX: [4600, 4500, 4450, 4400]|
|SPY: [450, 445, 440, 430]|
|QQQ: [360, 350, 345, 340]|
|NDX:[15000, 14500, 14225, 14000]|
|SPX Combo (strike, %ile): [4600.0, 4412.0, 4399.0, 4551.0, 4574.0]|
|SPY Combo: [458.8, 440.0, 438.66, 453.88, 456.11]|
|NDX Combo: [14227.0, 13955.0, 14356.0, 14155.0, 14284.0]|