Informe SG Levels

Futures are lower and have broken our key support level of 4100. Gamma is now marked as negative across all indicies, which infers that if markets decline dealers will need to sell futures. Our SG implied move for today is 1.3%, so we anticipate further volatility in this session. Note that VIX expiration is this morning, which can add to the market volatility and gyrations, so we advise caution around the 9:30 EST open – there could be a “fake out” move.

Our vanna model gives a clear expression of this dealer position. If markets decline, dealers delta (ie directional exposure) exposure gets more positive, and they have to sell futures to offset that larger exposure. If markets rally, dealers delta declines and so they can buy back futures. We think they will have light buying back into the 4150 area. With that we see 4050 as support, 4125 first resistance and 4150 larger resistance.

There is not much gamma expiring in todays expiration, and so if volatility sparks then it likely holds until Fridays expiration.  4000 stands out as our major support level over the next several days. As you can see below we essentially have 3 “nodes”: 4000, 4100 and 4150, and we see one of those as the target price for Fridays OPEX.

Model Overview:

4100 is the critical risk line into Fridays OPEX. Below 4100 is a high risk, negative gamma market position.