- A sustained rally is unlikely to occur until May 4th which holds the FOMC & Russian default. Due to these events, volatility (i.e. large puts) is unlikely to be meaningfully sold. This prevents an extended rise in equities.
- A break of 4200 invokes our “lower bound” concept, valid into 5/4.
- We see substantial, longer-term support at 4050 due to large open interest at 4000.
Daily Note:
Futures are near 4242, down from overnight highs of 4280. Volatility estimates for today hold near 1.13% – in line with that of recent days. Support shows at 4210 (SPY 420 equivalent) to 4200 SPX. Resistance shows at 4285 (Vol Trigger), then 4300. We also note 330 in QQQ as resistance.
Yesterday we saw heavy call volumes at 430/4300 and put volumes at 420/4200. Positions for today’s expiration seem rather concentrated in the 4250-4300 area as shown below (light grey area). We give a slight edge to markets closing in this range, but a break of 4250 implies a close at 4200.
Zooming out, the game of “ping pong” continues, largely as anticipated. As we’ve outlined, volatility and put positioning appears maxed out <=4200 (see “lower bound”), but we cannot have a release of IV lower until the 5/4 events pass (FOMC + Russian default). Therefore equity rallies are framed as short covering, and subject to quick and violent reversals. Supporting this idea, our HIRO readings yesterday revealed traders elected to sell calls and buy puts as the market moved into 4300. This suggests increased resistance >=4300.
We are increasingly warming up to the idea of a post-FOMC rally, based on positioning. Our standard view into FOMC events is that it releases event volatility, which is supportive for markets. Further, it appears traders are underpricing right-tail risk. Shown below is VIX options positioning, and you may note that call open interest(blue) is at highs rivaling March ’20. This makes sense given the environment, and VIX pushing 1 year highs. However put open interest(red) is near 1 year lows which suggests the short vol crowd is sitting this one out. It was only a few months ago that many traders would be jumping all over the opportunity to short vol….
We also see put-heavy readings in most single stocks, with what looks like anemic call demand. To this point, below is aggregate call & put gamma for stocks in the S&P500 Index. As you can see put gamma(red) is increasing while call gamma(green) holds near 1 year lows. If you flip through any of the major tech names in EquityHub, you will see that put gamma is > call gamma in all the major names (TSLA, AAPL, AMZN, FB, etc).
If the Fed comes in with a neutral to “less hawkish” stance, and the Russian default issue doesn’t flare up – that could lead to a rather significant rally. We also feel that because the market is put heavy, and IV (i.e. VIX) is so elevated, the bar is set pretty high for an equities upset. When IV is so high it takes increasingly larger underlying moves for options to pay off.
We think it would take a true credit event and/or a massive deviation from Fed expectations to bring another leg down in stocks, and make that elevated IV pay off.
Keep in mind we hold short term views here, generally no longer than 30 days out.
One admin note – we will be posting a video and full transcript of yesterdays Q&A session. Look for an email today with a link to that material.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4287 | 4287 | 427 | 13456 | 328 |
| SpotGamma Imp. 1 Day Move: Est 1 StdDev Open to Close Range |
1.13%, | (±pts): 48.0 | VIX 1 Day Impl. Move:1.85% | ||
| SpotGamma Imp. 5 Day Move: | 2.67% | 4271 (Monday Ref Px) | Range: 4158.0 | 4386.0 | ||
| SpotGamma Gamma Index™: | -0.89 | -1.56 | -0.24 | -0.00 | -0.07 |
| Volatility Trigger™: | 4285 | 4380 | 425 | 14000 | 325 |
| SpotGamma Absolute Gamma Strike: | 4300 | 4000 | 430 | 14050 | 325 |
| Gamma Notional(MM): | -517.0 | -466.46 | -1134.0 | -0.0 | -386.0 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4432 | 4434 | 0 | 0 | 0 |
| Put Wall Support: | 4100 | 4100 | 420 | 13000 | 300 |
| Call Wall Strike: | 4700 | 4700 | 426 | 14050 | 330 |
| CP Gam Tilt: | 0.77 | 0.54 | 0.62 | 0.96 | 0.76 |
| Delta Neutral Px: | 4415 | ||||
| Net Delta(MM): | $1,658,122 | $1,436,238 | $174,652 | $43,601 | $112,309 |
| 25D Risk Reversal | -0.13 | -0.09 | -0.11 | -0.15 | -0.13 |
| Call Volume | 547,225 | 266,063 | 2,020,213 | 2,354 | 1,053,346 |
| Put Volume | 900,071 | 572,946 | 3,277,745 | 2,074 | 1,987,288 |
| Call Open Interest | 5,226,302 | 4,594,845 | 5,979,599 | 47,402 | 4,055,808 |
| Put Open Interest | 10,030,932 | 8,307,599 | 10,845,727 | 51,670 | 6,797,662 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4400, 4300, 4200, 4000] |
| SPY: [435, 430, 425, 420] |
| QQQ: [340, 330, 325, 320] |
| NDX:[15000, 14050, 14000, 13000] |
| SPX Combo (strike, %ile): [4202.0, 4210.0, 4223.0, 4249.0] |
| SPY Combo: [419.25, 420.11, 421.39, 423.96] |
| NDX Combo: [13133.0, 13537.0, 13456.0, 13496.0] |
