Futures are holding the large 4500 level which forms as a new “base of operations”. We think this week will be rather quiet, as the S&P starts with a large amount of gamma and a 1 day SG max move estimate of 0.68%. We note resistance at 4521, with support at 4475.
You can see below how prominent 4500 is in SPX, and what is interesting at this juncture is that the Call Wall has not rolled higher. However, it has pushed to 452 in SPY. We therefore look at 4500-4520 as the top in the market, and will not expand that range until/unless the SPX Call Wall shifts to a higher strike.
The other thing of note here is the S&P is quite stretched from the Vol Trigger (4415) and Put Wall (4000). We think what happened is that most hedges were removed after the 10AM Powell speech on Friday. Once the Fed placated traders they rushed to liquidate their put positions, likely feeling that hedging isn’t warranted again until the Sep FOMC meeting (9/16).
The S&P price shifting higher without all of the other levels shifting higher is a signal that markets are overstretched to the upside. Positions need to fill in around the 4500 level which could take a few sessions. 4500 is a very large bar and total gamma is robust – so we view the markets as having some strong mean reverting tendencies into 4500 until our other levels “catch up”.
Looking forward we see that implied volatility (ie VIX) is pushing lower bounds. This implies that volatility sellers will provide only a small tailwind for markets (there is little fuel to the vanna trade). As we approach that 9/16 FOMC meeting we look for volatility to catch a bid as traders look to hedge. Around that time is a very large OPEX (9/17) and so we are marking that 3rd week of Sep as a trigger point for volatility.
Finally, for those of you more actively trading we see QQQ as holding a more volatile position, which implies much higher relative movement to SPX.
Model Overview:
4500 top, 4450 support into 9/17 OPEX. Very high gamma implies strong mean reversion.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4508 | 4507 | 450 | 15435 | 376 |
| SpotGamma Imp. 1 Day Move: | 0.68%, | 31.0 pts | Range: 4477.0 | 4539.0 | ||
| SpotGamma Imp. 5 Day Move: | 1.85% | 4508 (Monday Ref Px) | Range: 4425.0 | 4592.0 | ||
| SpotGamma Gamma Index™: | 1.97 | 0.85 | 0.19 | 0.05 | -0.01 |
| Volatility Trigger™: | 4415 | 4425 | 449 | 14875 | 374 |
| SpotGamma Absolute Gamma Strike: | 4500 | 4450 | 450 | 15075 | 375 |
| Gamma Notional(MM): | $655 | $619 | $981 | $6 | $-59 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4468 | 4434 | 0 | 0 | 0 |
| Put Wall Support: | 4000 | 4350 | 449 | 14000 | 365 |
| Call Wall Strike: | 4500 | 4500 | 452 | 15075 | 380 |
| CP Gam Tilt: | 1.55 | 1.34 | 1.26 | 1.6 | 0.96 |
| Delta Neutral Px: | 4287 | ||||
| Net Delta(MM): | $1,588,988 | $1,600,880 | $210,024 | $47,285 | $83,144 |
| 25D Risk Reversal | -0.07 | -0.08 | -0.08 | -0.06 | -0.06 |
| Top Absolute Gamma Strikes: |
|---|
| SPX: [4525, 4500, 4450, 4400] |
| SPY: [452, 450, 445, 440] |
| QQQ: [380, 376, 375, 370] |
| NDX:[16000, 15075, 15000, 14450] |
| SPX Combo: [4499.0, 4521.0, 4548.0, 4508.0, 4535.0] |
| SPY Combo: [449.35, 451.6, 454.3, 450.25, 452.95] |
| NDX Combo: [15082.0, 15607.0, 15808.0, 14990.0, 15514.0] |
