Informe SG Levels

Futures are lower,testing 4500. Overall gamma remains robust (particularly SPY) and so we anticipate a tight trading range today (0.73%). As 4500 is a very large gamma line we look to it as support, however the gamma flip point lies just below this level.  Resistance is at 4525.

As shown in this EquityHub snapshot there is a major inflection point (support) specifically at 4490 and major support at 4440. We think it would take some type of fundamental push to break that level. In other words, things could get “chippy” but we don’t see things positioned for a large drawdown (>1%).

Along with that VIX reading of 18, we see the closing risk-reversal print was -0.08 which indicates a decent amount of “fear” is in place. This infers that there is some hedging in place, but as we’ve outline previously traders may be light on shorting volatility ahead of the FOMC. Put buyers may add some short term weakness to markets, but we also thing they provide a vital mechanism for putting in lows (when traders close long puts dealers can cover short hedges).

This could be tricky a tug of war between gamma and increasing implied volatility, but we think its unlikely we get a sharp “V” bounce back to 4550 without that reflexive volatility selling. The closer we get to OPEX the less likely that the supply of volatility comes.

Model Overview:

4500 support, 4550 resistance into 9/17 OPEX. VIX Exp 9/15 opens a window of weakness into 9/22 FOMC.