Futures caught a bid overnight and are currently sitting at session highs of 4470. The implied open indicates the S&P Index could open right under heavy resistance of 4500. Support is at 4448, and 4415. Our models look for high volatility today, with an SG implied max move of 1.3%. Things are loosening up, just as we enter the 9/15 VIX & 9/17 Equity expirations.
There were large shifts in many of our key levels. The Call Wall figures have rolled lower to 4500SPX/450SPY which is a bearish signal. Along with that is a very curious divergence between the Zero Gamma, and our proprietary Vol Trigger flip point of 4415. Its rare to see such a large gap between these figures. Relatedly, the Put Wall shifted down from 4480 to 4300. Taken together, it appears that traders took the opportunity to roll/close at-the-money put positions as seen below.
These rolls deflated some of the negative gamma in the 4450-4500 area which is why the Vol Trigger moved lower. The result is this: a break of 4450 and we think volatility (and a market decline) speeds up due to dealers needing to hedge short.
The QQQ setup is even more volatile than that of the S&P. You can see this below in our vanna model which shows a very sharp, condensed skew. This indicates, of course, that dealers are shorting as market declines to offset short put options. Of course, it also means they are buying as futures rally – all of which expands volatility.
This is all playing into our forecasts for the last several weeks. The window for volatility is wide open, however if that volatility expresses itself pre-opex it presents an interesting situation. We’ve long stated that because the Fed is next week there would be a dearth of short volatility supply this week. This likely limits the fuel immediately available for a “V” type bottom that we’ve seen during other sell offs this year.
But, if markets sell off hard into Friday it could lead to large in the money put positions expiring. This could place a recovery rally next week into the 9/22 FOMC.
Model Overview:
4500 resistance into 9/17 OPEX. Markets currently hold a negative gamma which implies high volatility.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4472 | 4462 | 445 | 15472 | 376 |
| SpotGamma Imp. 1 Day Move: | 1.3%, | 58.0 pts | Range: 4414.0 | 4530.0 | ||
| SpotGamma Imp. 5 Day Move: | 4.55% | 4472 (Monday Ref Px) | Range: 4269.0 | 4676.0 | ||
| SpotGamma Gamma Index™: | -0.13 | -0.52 | -0.10 | 0.01 | -0.12 |
| Volatility Trigger™: | 4415 | 4515 | 448 | 15070 | 380 |
| SpotGamma Absolute Gamma Strike: | 4500 | 4500 | 450 | 15075 | 380 |
| Gamma Notional(MM): | $-235 | $-500 | $-382 | $3 | $-584 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4507 | 4497 | 0 | 0 | 0 |
| Put Wall Support: | 4300 | 4480 | 430 | 14450 | 350 |
| Call Wall Strike: | 4500 | 4550 | 450 | 15075 | 385 |
| CP Gam Tilt: | 0.97 | 0.81 | 0.91 | 1.2 | 0.69 |
| Delta Neutral Px: | 4318 | ||||
| Net Delta(MM): | $1,692,983 | $1,633,256 | $224,306 | $55,237 | $100,694 |
| 25D Risk Reversal | -0.07 | -0.09 | -0.09 | -0.07 | -0.08 |
| Top Absolute Gamma Strikes: |
|---|
| SPX: [4525, 4500, 4450, 4400] |
| SPY: [450, 448, 445, 440] |
| QQQ: [380, 375, 370, 350] |
| NDX:[15500, 15075, 15000, 14450] |
| SPX Combo: [4515.0, 4569.0, 4448.0, 4591.0, 4519.0] |
| SPY Combo: [449.45, 454.79, 442.77, 457.02, 449.89] |
| NDX Combo: [15109.0, 15821.0, 15217.0, 15419.0, 15697.0] |
