Informe Option Levels

Futures have pressed higher to 4000. 4000 remains an important market long term pivot point, and first resistance for today. Above that we mark 4015 (SPY400) then 4050. To the downside we see support at 3950.

Fridays price action confirmed a key theme that markets can continue to grind lower without a major escalation in IV. Based on market action and some preliminary data, we’re currently of the view that 0DTE may be aiding in reducing volatility, as it seems strong, positive 0DTE deltas come in after weak overnight moves (video here).

The noticeable positioning change Friday was an increase in call positioning in the 395 SPY/3950 SPX – 400/4000 range (shown below), which likely results in making this area a lower volatility zone. On this point we’ve been talking about a “liquidity hole” flip point wherein the force of longer dated vega becomes a market driver. We were marking that level at 4000 early last week, and now see that flip area down at 3900.

To the upside, for today there should be fairly little resistance in the 4000 SPX – 4015 (SPY400 area), as that is a strong magnet. We would view any price action back up into that area as short covering, fueled by the reduction in slightly elevated IV’s and 4000 related gamma. Overall we do view the 4000-4015 area as a longer term band of resistance.

Its above the 4050 line wherein we would be more constructive on market strength. Above that 4050 resistance level, call positions likely build above helping to draw the market higher.

Out bottom line is that we see any rally stalling out in the 400 SPY area for today. We would then hold a neutral stance on the market while in the 4000-4050 range, shifting to a longer term bullish stance on a break above 4050, as noted above. A break back below 4000 shifts momentum back to the bears, but we reiterate the view that it is likely a grind lower. As a result put options may continue to underperform, and those wishing to express short views may favor being more short delta vs long vega.