Informe SG Levels

Futures popped higher this morning to 4220. On Friday we noted that just enough gamma was expiring to allow for some volatility, leading to a break from last weeks 4200 pin.  That appears to be in play today, with our models indicating an overhead target of 4250 (Call Wall) and large support at 4200. Additionally,  we look for a fairly low volatility day given the max SG Implied Move is at 36 pts.

You can see how overhead resistance builds into 4250 by looking at our vanna model (FAQ). As S&P prices rise higher, dealers likely have to sell increasing amount of futures to offset rising long delta exposure. With that, if prices feed back down into 4200 dealers can buy back those short futures, which helps provide support.

Gamma does not not flip until we break 4200,  and while above that level we look for this strong mean reverting flow from market makers. This flow serves to dampen volatility and provide a tailwind to markets.

Model Overview:

While markets hold 4200 we look for a low volatility grind higher, with 4250 the overhead target. 4160 is the gamma flip line, and therefore critical support.