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Informe Option Levels

Mar 13, 2023 | Option Levels | 0 Comentarios

June ES Futures are higher to 3912 (+40bps), but well off of overnight highs of 3970. This implies that the cash index will open under the key SPX level of 3900. The VIX is near 30, which suggests traders are looking for ~2% daily moves in the S&P500.

For today, TLDR: below 3850 is bearish, 3850-3910 is a neutral zone, >3910 is bullish.

“Volatility” is the name of this game, not just from a macro perspective, but also from large options positions and high implied volatility. This makes everyones favorite greeks major drivers: gamma, vanna & charm.

  1. Gamma is materially negative, and remains so under 3950. This implies dealers are hedging in the direction of the market, which should continue to produce large intraday swings. Because there are huge positions tied to Fridays expiration, gamma is further elevated, which adds to volatility (movement up & down). Its likely not until Friday’s expiration and/or a close >4000 that this gamma is removed.
  2. Vanna: Implied vol is very high, and put values are quite elevated. This implied volrequires a lot of downside price movement &/or macro angst to sustain. This makes vanna a major force, as any “pause” in market prices &/or improvement in sentiment should decrease put volatility (and values), allowing dealers to buy futures. For IV to shift higher, something really needs to break. The hook here is tomorrows CPI, which contains some event vol, which in turn prevents a full reversion in IV for today.
  3. Charm: Because Friday is a massive expiration with large put positions, charm plays a factor. Currently time passing is tail wind for equities, as this market is now put dominated. Again, because of tomorrows CPI put values may hold up a bit better today.

Zooming in on the level changes:

The Put Walls shifted lower to 380 SPX & 3800 SPX from 390/3900. Therefore 3800 is now the lowest level of our trading range (i.e. a break of 3800 is now considered “overextended”).

The 385/3850 support strike is the ones to watch, this level is now considered first support, and below this strike implies a fast retest of the 380/3800 Put Wall.

The Absolute Gamma Strike (the strike with the largest total gamma) remains at 4000 in SPX, but shifted to 390 is SPY. This suggests heavy short dated positioning rolled down in SPY (more retail focused). It also implies ample initial resistance in the 3900-3910 (SPY 390) area, but a break above 3910 has little resistance until 3950.

SPY Gamma by Strike. March 13th, 2023

What was clear to us on Friday was that there was record put volume, but not so much in the way of large put open interest. In other words: lots of “day trading”, but no so much “positioning for Lehman 2.0”.

Yesterdays regulatory intervention may have put a pause in the reflexive “doom loop” which was starting to spool up on Friday. The question now: “Is there new, immediate incremental risk?” If additional selling enters the markets, then downside put values can continue to elevate, creating hedging flows which pull the market lower. Further, if traders start to enter new put positions for macro hedging purposes, that adds to additional pressure (but puts are currently quite expensive).

Of course any selling outside of the options complex (i.e. fundamental sellers, margin calls, etc) adds to downside pressure, which draws more dealer hedging and speeds up the velocity of downside market movement.

Finally, there is record VIX call open interest so a VIX move >30 adds lots of vega into the equation.

Therefore, there is plenty of fuel for things to really break here. However, we need large price swings to justify the values of all these short dated, 3/17 expiration puts. But, again, we likely need another downside spark.

Ultimately, under 3850 with a VIX >30 is our renewed downside risk signal. A trend above that level starts to tip the scales in favor a “risk off rally”.

From the trading perspective, you cannot rule out overly-exaggerated rallies, and ultimately there is plenty of fuel to run this market back up into the 4000-4100 area.

Those looking to play further downside risk buying very expensive puts, and so we would favor waiting for market rallies to re-short.

SpotGamma Proprietary SPX Levels Latest Data SPX Previous SPY NDX QQQ
Reference Price: 3861 3877 385 11830 288
SG Implied 1-Day Move: 0.89%, (±pts): 34.0 VIX 1 Day Impl. Move:1.56%
SG Implied 5-Day Move: 2.54% 3861 (Monday Reference Price) Range: 3764.0 | 3960.0
SpotGamma Gamma Index™: -2.21 -2.01 -0.61 0.01 -0.15
Volatility Trigger™: 4000 4000 400 11840 296
SpotGamma Absolute Gamma Strike: 4000 4000 390 12300 290
Gamma Notional (MM): -1083.0 -1223.0 -3000.0 3.0 -916.0
Call Wall: 4200 4200 430 12300 310
Put Wall: 3800 3900 380 11000 285
Additional Key Levels Latest Data Previous SPY NDX QQQ
Zero Gamma Level: 4072 4038 406.0 11649.0 326
Gamma Tilt: 0.59 0.58 0.42 1.16 0.6
Delta Neutral Px: 3946
Net Delta(MM): $1,582,522 $1,584,912 $221,555 $49,392 $108,395
25 Day Risk Reversal: -0.05 -0.05 -0.07 -0.05 -0.05
Call Volume: 739,107 681,174 3,156,323 11,695 1,043,411
Put Volume: 1,706,526 1,156,478 5,865,193 11,447 1,513,851
Call Open Interest: 6,484,319 6,472,256 6,899,836 67,402 5,231,411
Put Open Interest: 11,383,540 11,584,655 13,777,932 68,656 8,518,955
Key Support & Resistance Strikes:
SPX: [4000, 3950, 3900, 3850]
SPY: [400, 390, 385, 380]
QQQ: [300, 290, 285, 280]
NDX: [12300, 12000, 11750, 11500]
SPX Combo (Strike, Percentile): [(4001.0, 94.1), (3950.0, 94.05), (3900.0, 98.94), (3889.0, 77.07), (3873.0, 84.04), (3869.0, 87.3), (3862.0, 76.22), (3850.0, 98.41), (3831.0, 75.8), (3827.0, 92.33), (3815.0, 80.6), (3811.0, 80.86), (3800.0, 99.73), (3780.0, 81.77), (3777.0, 89.41), (3761.0, 76.42), (3750.0, 98.1), (3726.0, 82.83), (3699.0, 98.9), (3676.0, 79.61)]
SPY Combo: [379.74, 389.77, 369.7, 384.75, 374.72]
NDX Combo: [11688.0, 11475.0, 12303.0, 11274.0, 11889.0]
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