Futures have drifted lower to 3985 after a quiet overnight session. Key SG levels remain unchanged, with 4000 – 4010 (SPY 400) serving as the pivot. Resistance above 4010 lies at 4050. To the downside we see then 3960 (SPY 395 & 3950 as support.
With Powell behind us, the option markets adjustment has digested the event vol which has led to a slight softening to downside tail risk (blue, below) and a minor increase in upside tails (red). This falls in sync with the market feeling that Powell’s testimony had no teeth, and is now focused on upcoming data.
The challenge here is that the data seems to have a rolling cascade of importance. Baring a tail print, traders seem to consistently take a “nothing done” from the daily data onslaught, and immediately shift focus to the next print.
In this case with Jobless claims today, NFP tomorrow, and CPI on Tuesday it becomes quite a challenge to know whats going to be significant enough to trigger a large market move. Adding to the difficulty in forecasting, is that the S&P is holding tight to this 4000 equilibrium level, with 30 day IV trading only 1.5 pts above 30 day realized (IV is pretty neutral). Based on this, one has to take the base case that this mornings jobs number will not inflict volatility, and 4000 will remain in play.
What’s interesting off the back of this, is that tail risk is cratering. Shown here is 3 month, 90% SPX IV which has plunged – despite the SPX being off of Feb highs. This is also in somewhat direct opposition to the large VIX call volumes, and record VIX call open interest (per yesterdays AM note).
In the short term, our models are neutral from the 3980 – 4010 zone. A break below 3980, we think the pull shifts price action down into the 3950 and 3900 area. Above 4010 (SPY 400), bulls have some benefit and we’d look for a test of 4050. There remains several bands of resistance above 4050 – 4100, and we do not think that zone would be in play until early next week. In any scenario, we do not anticipate high volatility (> 1% close/close movement) until/unless 3900 comes into play.
Zooming out, the most consistent themes we see are:
- 0DTE reduces daily volatility (we have a full presentation coming on this)
- There is a persistent lack of demand and/or desire to sell downside puts
- Over 4200, call demand seems to consistently dry up (as seen in Aug ’22, Dec ’22, Feb ’23)
- 4000 is, and has been, a long term “equilibrium point” based on large gamma at that strike
Ultimately, the two themes which seem most vulnerable are 0DTE vol suppression, and the lack of downside puts. However, a catalyst is needed to catch these functions offsides, and that likely has to come from credit markets. Credit markets currently seem by and large stable, and the only obvious potential catalyst is the “debt ceiling” which is likely to dominate headlines come July.
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Reference Price: | 3992 | 3977 | 398 | 12215 | 297 |
| SG Implied 1-Day Move: | 0.86%, | (±pts): 34.0 | VIX 1 Day Impl. Move:1.2% | ||
| SG Implied 5-Day Move: | 2.55% | 4045 (Monday Reference Price) | Range: 3942.0 | 4149.0 | ||
| SpotGamma Gamma Index™: | -0.78 | -1.03 | -0.45 | 0.05 | -0.09 |
| Volatility Trigger™: | 4000 | 4005 | 400 | 12060 | 296 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 400 | 12300 | 300 |
| Gamma Notional (MM): | -429.0 | -661.0 | -2026.0 | 8.0 | -506.0 |
| Call Wall: | 4200 | 4200 | 405 | 12300 | 310 |
| Put Wall: | 3900 | 3900 | 390 | 11000 | 290 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4034 | 4019 | 407.0 | 11651.0 | 307 |
| Gamma Tilt: | 0.86 | 0.77 | 0.62 | 1.53 | 0.77 |
| Delta Neutral Px: | 3959 | ||||
| Net Delta (MM): | $1,502,804 | $1,486,718 | $194,228 | $51,934 | $103,278 |
| 25 Day Risk Reversal: | -0.03 | -0.03 | -0.03 | -0.03 | -0.03 |
| Call Volume: | 509,769 | 650,821 | 1,776,806 | 9,997 | 679,213 |
| Put Volume: | 759,228 | 991,663 | 2,558,729 | 6,315 | 873,658 |
| Call Open Interest: | 6,465,091 | 6,394,858 | 6,840,589 | 65,500 | 5,172,175 |
| Put Open Interest: | 11,242,868 | 11,144,630 | 13,959,338 | 66,898 | 8,762,850 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4050, 4000, 3950, 3900] |
| SPY: [402, 400, 395, 390] |
| QQQ: [300, 295, 290, 285] |
| NDX: [13000, 12300, 12200, 12000] |
| SPX Combo (Strike, Percentile): [(4176.0, 76.98), (4152.0, 90.84), (4124.0, 77.24), (4100.0, 84.98), (4076.0, 84.94), (4064.0, 94.16), (4052.0, 89.18), (4032.0, 84.3), (4000.0, 93.21), (3976.0, 82.84), (3952.0, 85.27), (3948.0, 97.77), (3944.0, 84.01), (3924.0, 92.65), (3904.0, 92.22), (3900.0, 98.79), (3884.0, 75.98), (3876.0, 84.31), (3852.0, 81.17), (3848.0, 94.08), (3824.0, 88.42), (3804.0, 82.14), (3800.0, 97.79)] |
| SPY Combo: [389.74, 379.77, 394.53, 406.1, 384.56] |
| NDX Combo: [12301.0, 11898.0, 11690.0, 12106.0, 12716.0] |
