Informe SG Levels

Futures have recovered some to 4175 – but that comes off of 4134 overnight lows. Markets start in a sharp negative gamma position which has us looking for high volatility today. Todays major overhead resistance line is 4234, with 4100 support.

Todays setup is best captured by our vanna model (FAQ here). Below you can see how much the “skew” changed from Friday and the large 6/18 expiration. The fact that todays model is “tilted” (ie red line angles down) indicates that dealers are selling as market declines but buying as markets rise. This is what leads to higher volatility/larger directional moves. Second, note how much the “Delta Notional” declined (y axis, red boxes), which indicates lower options positions and less “stickiness” to levels.

The key here lies in watching implied volatility. If the VIX (ie implied volatility) breaks lower we see markets ratcheting higher. Conversely a higher VIX indicates markets are likely to come under pressure. With that, we are anticipating a fairly large directional move over the next several days. Material amounts of positive gamma do not show up until 4300 in the S&P, with 4000 being the major downside line.

Model Overview:

Starting range for July OPEX is 4000 to 4300. Gamma is negative and we therefore look for large directional swings.