Futures have pressed higher to 3750 overnight. The 3800 Vol Trigger remains our resistance line overhead. Support shows down at 3600. There are fewer notable support and resistance lines in this price area due to small gamma strike sizes.
As the volatility is quite high (futures are up 4% from y’days lows), large blocks of positions have not had time to form. This led to our suggestion that 3800 would be the first large resistance point – and this remains our view.
In the gamma chart below you can see the kink in the curve around 3800-4000 which is created by call positions. While dealer hedging has been chasing the market from 3600 (due to negative gamma), that flow should reduce into 3800. Further, is it critical to understand that this market is driven not by calls, but by the buying and selling of large put positions (explained here).
Looking forward after this rally, we now do not currently have a clear edge. Options positions here are not large, and there is no major expiration for 2-3 weeks.
The issue at hand, as we state constantly, is that put-fueled rallies (like this one) are violent, but unstable. If traders now come in and initiate call positions, that should lower volatility and create a base for a more sustainable rally. However, there is nothing to stop this market from reverting and giving up all of these gains in 1 session. We now have to see how positions form, but we are of the believe that call positions entered last week should be rolled up in strike and/or out in time to capture gains and reduce risk.
The other oddity here, is implied volatility. We looked at dozens of IV metrics yesterday, and were rather unimpressed by the decline in IV. One with think that IV would be crushed given the equity bounce. On one hand there was a very sharp rally which, in theory, supports high IV. But we did not get the impression that traders elected to short OTM puts.
For example below we plot VOLI (“ATM VIX”, blue) vs SDEX (skew/price of OTM puts, indicator explainer here). What this shows is that ATM IV came down some, which we could again waive off as the market rise being quite volatile. However you can see the SDEX (blue) hasn’t reverted which suggests that traders did not begin to sell those OTM puts. In other words, this rally was not (yet) a “put capitulation” – at least as of yet. Equity prices are higher, but the jitters are not gone. Risk remains high.
The next really significant data point appears to be the 10/13 CPI reading, which should trigger a large directional move into Friday, 10/21 OPEX. 10/21 OPEX is the next significant expiration as shown below.
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 3677 | 3679 | 366 | 11229 | 273 |
| SG Implied 1-Day Move:: | 1.25%, | (±pts): 46.0 | VIX 1 Day Impl. Move:1.9% | ||
| SG Implied 5-Day Move: | 3.08% | 3589 (Monday Ref Price) | Range: 3479.0 | 3700.0 | ||
| SpotGamma Gamma Index™: | -1.31 | -1.94 | -0.33 | -0.00 | -0.10 |
| Volatility Trigger™: | 3800 | 3800 | 380 | 11725 | 290 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 360 | 11750 | 280 |
| Gamma Notional(MM): | -794.0 | -708.0 | -1818.0 | -1.0 | -698.0 |
| Put Wall: | 3600 | 3500 | 350 | 11000 | 265 |
| Call Wall : | 3835 | 3835 | 373 | 11750 | 288 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 3988 | 3960 | 394.0 | 11302.0 | 317 |
| CP Gam Tilt: | 0.61 | 0.59 | 0.5 | 0.93 | 0.55 |
| Delta Neutral Px: | 3932 | ||||
| Net Delta(MM): | $1,572,079 | $1,575,318 | $203,461 | $39,668 | $96,925 |
| 25D Risk Reversal | -0.06 | -0.06 | -0.05 | -0.06 | -0.06 |
| Call Volume | 604,781 | 586,991 | 1,932,520 | 7,546 | 682,850 |
| Put Volume | 827,320 | 982,018 | 3,191,360 | 7,226 | 989,415 |
| Call Open Interest | 5,979,323 | 5,872,495 | 7,806,526 | 57,604 | 4,519,255 |
| Put Open Interest | 10,443,380 | 10,055,128 | 12,581,036 | 68,585 | 6,364,371 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4000, 3800, 3700, 3600] |
| SPY: [370, 365, 360, 350] |
| QQQ: [290, 285, 280, 270] |
| NDX:[12500, 12000, 11750, 11000] |
| SPX Combo (strike, %ile): [(3748.0, 81.24), (3700.0, 82.56), (3648.0, 91.79), (3623.0, 81.45), (3619.0, 80.29), (3612.0, 81.1), (3601.0, 97.93)] |
| SPY Combo: [358.91, 363.68, 368.81, 361.11, 373.58] |
| NDX Combo: [11084.0, 11005.0, 11499.0, 11286.0] |
