Futures have pushed back to highs of 4538 which indicates the SPX will open against heavy resistance in the 4550 area. We look for another small trading range today, with a band of resistance from 4550-4560(SPY 455 equivalent). Support remains at 4515. We look for todays session to be much like yesterdays.
We’ve spend a great deal of time penning notes which forecast “tight trading ranges” lately. That is being reflected in realized volatility, which is now back near year lows of 7. The 6-7 area has been a lower bound going back several years, and this low volatility syncs with markets at all time highs.
We’ve written ad nauseam about reflexive volatility selling, and this market function comes back into play soon. With both realized and implied volatility at lows (Fridays ATM options are trading at a 7% IV) we think that volatility sellers have squeezed out all of the juice. However markets are fast approaching a window of volatility which could produce some pretty sharp volatility:
9/15 VIX expiration, 9/17 Quarterly OPEX and the 9/22 FOMC. This lineup is particularly interesting as we believe that expatriation leads to a pickup in volatility – however traders may hold the pause button on selling that volatility due to the FOMC. This could catch less sophisticated vol sellers off guard and lead to some exacerbated volatility.
We’ve been recently accused of having an overtly bearish tone in our notes, despite laying out that our default assumption of markets are higher (assuming SPX > Vol Trigger). We want to make clear that when we flag major risk it is based on the positioning of options. SpotGamma makes no market calls based on fundamental views.
Its true that we have mentioned this reflexive vol-selling-forced-short-cover risk many times this year and we feel its our responsibility to highlight when we see the setup for a major unwind. As such we note the conditions are in place for some selling and a volatility spike into the week of 9/13.
4500 support, 4550 resistance into 9/17 OPEX. VIX Exp 9/15 opens a window of weakness into 9/22 FOMC.
|SpotGamma Proprietary Levels||Latest Data||Previous||SPY||NDX||QQQ|
|SpotGamma Imp. 1 Day Move:||0.73%,||33.0 pts||Range: 4487.0 | 4553.0|
|SpotGamma Imp. 5 Day Move:||1.85%||4508 (Monday Ref Px)||Range: 4425.0 | 4592.0|
|SpotGamma Gamma Index™:||1.64||1.48||0.21||0.04||-0.03|
|SpotGamma Absolute Gamma Strike:||4500||4500||450||14450||380|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||4480||4483||0||0||0|
|Put Wall Support:||4000||4000||445||14000||365|
|Call Wall Strike:||4550||4550||455||15075||385|
|CP Gam Tilt:||1.47||1.26||1.25||1.63||0.89|
|Delta Neutral Px:||4299|
|25D Risk Reversal||-0.06||-0.07||-0.07||-0.06||-0.06|
|Top Absolute Gamma Strikes:|
|SPX: [4550, 4525, 4500, 4450]|
|SPY: [452, 450, 445, 440]|
|QQQ: [382, 380, 378, 370]|
|NDX:[16000, 15075, 15000, 14450]|
|SPX Combo: [4552.0, 4502.0, 4601.0, 4574.0, 4524.0]|
|SPY Combo: [454.51, 449.54, 459.48, 456.77, 451.8]|
|NDX Combo: [15817.0, 16020.0, 15723.0, 15770.0, 15488.0]|