Futures are yet again flat to 4425. We anticipate yet another tight trading range with the SG implied move at 0.73%. First support is at 4412 and 4439 resistance. 4400 is our critical support line, should that break we look for a test of 4362.
Its of little surprise that our realized volatility models are compressing sharply. The top graph here shows our volatility measure which looks at the intraday high/low, and we think that it will soon push through that red horizontal line to match previous lows. Accordingly, the close to close volatility (bottom chart) is near its lower bound. One could look at this compression as bulls and bears being deadlocked.
What’s interesting about this is that we have the VIX poised near its lower bound, but our Risk Reversal model is showing an 8 which reflects that puts are moderately priced vs calls. That’s a bit of an odd thing to occur with realized vol at lows and markets at all time highs. Because this Risk Reversal model looks at options that are ~30days out we are clearing picking up some of the “event risk” of Jackson Hole.
Hedging may increase as we get closer to the August 28th event, and we are starting to warm up to the idea of a selloff or correction between now and then. As longtime subscribers know, we see monthly OPEX as a catalyst for volatility. Therefore the 8/20 OPEX could lead to a “freeing” of markets from the current gamma grasp, which could sync with traders looking for short term Fed hedges.
Consider the November elections wherein the October OPEX was on the 16th (red line) and markets dropped hard into the 11/3 (green arrow) election day (this Fed symposium is certainly not of the same importance as a US Presidential election, but it illustrates our point). We think its unlikely that anything material comes from the Jackson Hole event, but that won’t stop traders from bidding up volatility into that date.
Seeing as how markets are stuck at this compressed 4450 spot, this extra bid to downside protection could lead to a bit of pressure into the end of August.
Model Overview:
4450 top, 4400 support into 8/20 OPEX.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4400 | 4400 | 440 | 15014 | 366 |
| SpotGamma Imp. 1 Day Move: | 0.73%, | 32.0 pts | Range: 4368.0 | 4432.0 | ||
| SpotGamma Imp. 5 Day Move: | 1.91% | 4417 (Monday Ref Px) | Range: 4333.0 | 4501.0 | ||
| SpotGamma Gamma Index™: | 1.20 | 1.7 | 0.19 | 0.04 | -0.06 |
| Volatility Trigger™: | 4395 | 4370 | 441 | 14740 | 366 |
| SpotGamma Absolute Gamma Strike: | 4400 | 4000 | 440 | 14775 | 368 |
| Gamma Notional(MM): | $9 | $113 | $-380 | $5 | $-281 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4398 | 4398 | 0 | 0 | 0 |
| Put Wall Support: | 4395 | 4100 | 435 | 14000 | 360 |
| Call Wall Strike: | 4450 | 4450 | 445 | 14775 | 370 |
| CP Gam Tilt: | 1.33 | 1.06 | 0.91 | 1.39 | 0.83 |
| Delta Neutral Px: | 4248 | ||||
| Net Delta(MM): | $1,430,733 | $1,448,352 | $187,698 | $44,659 | $84,564 |
| 25D Risk Reversal | -0.08 | -0.08 | -0.07 | -0.06 | -0.06 |
| Top Absolute Gamma Strikes: |
|---|
| SPX: [4450, 4425, 4400, 4350] |
| SPY: [445, 443, 442, 440] |
| QQQ: [370, 368, 365, 360] |
| NDX:[15000, 14775, 14450, 14000] |
| SPX Combo: [4439.0, 4447.0, 4487.0, 4465.0, 4412.0] |
| SPY Combo: [444.01, 444.89, 448.88, 446.66, 441.35] |
| NDX Combo: [15150.0, 14940.0, 14985.0, 15345.0, 15315.0] |
