Informe SG Levels

Futures are flat to Fridays close at 4340. The Call Wall has shifted up to 4400 which is now the top end of our range. Our models look for low volatility today with a 36pt max move. There are large Combo strikes at 4361 & 4383 which are resistance lines for today. Support lies at 4336 and 4325. We look for this low volatility, grind higher trading as long as the SPX remains above 4300.

Our vanna models are still showing heavy resistance >4350 and this typically supports the forecast for low volatility. We note that this model for QQQ shows a more neutral stance suggesting more relative volatility (both to the upside and downside).

We posted up a video this weekend discussing some of the dynamics we see forming in markets. There are some signs of euphoria starting to enter in, but we also note that realized volatility is now hitting a lower bound. As you can see here we are currently near where realized volatility has held over the past 10 years (the low was ~4 in late ’17, high was ~90 in April ’20).

These low volatility markets can persist for some time as traders are reflexively rewarded for selling volatility. Eventually a catalyst sparks a rather violent unwind which we think let to Volmegeddon in ’18 and exacerbated the ’20 crash.

The timing of these events is of course quite difficult, and its obviously been a “fools errand” to short this market. To be clear we do not currently see any reason to look for a break down this week. To avoid speculating on drawdown timing, we rely on our gamma flip metrics (Vol Trigger, Zero Gamma) to consider “risk off” positions. This flip line currently resides at 4300, and we mark the 4000 strike as having massive open interest which would be our target if any serious selling should manifest.

Model Overview:

4400 top, 4300 support into July OPEX.