Futures are up slightly to 3925. Key SG levels are unchanged, with first support at 3850, and major support at the 3800 Put Wall. Resistance lies at 3900, followed by 3950.
This morning we are monitoring the dual factors of charm and implied volatility. First, in regards to IV, markets are awaiting the 8:30AM ET Jobless Claims, and 9:15 AM ET ECB rate decision. Our default view is that this data will be uneventful/in line with expectations. As a result, we would expect a general, small decline in IV into the cash session.
Assuming this is the case, it should flip the largest options factor to 3/17 AM expiration, and charm. Shown in the chart below is 3/17 AM SPX open interest for puts (red) and calls (green). You can see there are clearly 3 major strikes of interest near current S&P levels: 3850, 3900 & 3950. Additionally we have plotted skew for 3/17 expiration, and you can see that IV has come down since yesterday as indicated in the red box (dotted blue = yesterday, solid = current reading). This
Our read here is that charm should provide some short term support & stability markets, which is a stronger tailwind <3900. We continue to view the 3950 Vol Trigger as a range high into tomorrow. While 4000 is the largest area of open interest, 3900 is the strike with the most gamma which infers its a stronger area of dealer hedging (pinning/pivot area).
To the downside, we continue to watch 3850, which has proven to be support over the last several sessions. We also note that our Put Walls have not rolled lower from 3800, which suggest light demand for renewed downside protection. The Put Wall is our most extreme, albeit unlikely, downside case into tomorrow AM.
Zooming out, IV is elevated, but stable, and we would expect this state to hold into 3/22 FOMC. SPX term structure (shown below) remains in a backwardated state which implies higher market risk. Again, the passing of today’s Jobs/ECB data and backstop of Credit Suisse may offer some short term, “pre-FOMC” relief which should support markets (i.e. ease tail risk, but not necessarily generate a strong bid).
Looking at realized volatility, its certainly elevated (5 day RV orange), which in turn elicits higher IV (white). Our takeaway from this is that these current, elevated levels of IV are warranted, but not extreme. Further, current levels of IV are likely to hold in through FOMC. In sync with our views from last weekend – traders are respecting the elevated volatility, but not necessarily grabbing for tail risk protection.
|SpotGamma Proprietary SPX Levels||Latest Data||SPX Previous||SPY||NDX||QQQ|
|SG Implied 1-Day Move:||0.87%,||(±pts): 34.0||VIX 1 Day Impl. Move:1.62%|
|SG Implied 5-Day Move:||2.54%||3861 (Monday Reference Price)||Range: 3764.0 | 3960.0|
|SpotGamma Gamma Index™:||-1.46||-1.25||-0.53||0.09||-0.04|
|SpotGamma Absolute Gamma Strike:||3900||4000||390||12300||300|
|Gamma Notional (MM):||-699.0||-1082.0||-2440.0||14.0||-276.0|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||4049||4029||406.0||11890.0||330|
|Delta Neutral Px:||3978|
|Net Delta (MM):||$1,685,824||$1,608,825||$219,012||$55,366||$109,838|
|25 Day Risk Reversal:||-0.07||-0.06||-0.08||-0.05||-0.07|
|Call Open Interest:||6,750,680||6,606,394||7,198,670||71,287||5,528,663|
|Put Open Interest:||12,026,468||11,938,499||14,440,513||71,392||8,943,405|
|Key Support & Resistance Strikes:|
|SPX: [4000, 3950, 3900, 3850]|
|SPY: [400, 390, 385, 380]|
|QQQ: [305, 300, 295, 290]|
|NDX: [12500, 12300, 12200, 12000]|
|SPX Combo (Strike, Percentile): [(4064.0, 87.17), (4053.0, 75.02), (3951.0, 85.86), (3901.0, 98.96), (3893.0, 86.56), (3881.0, 75.29), (3877.0, 84.45), (3870.0, 89.84), (3862.0, 81.86), (3850.0, 97.87), (3827.0, 89.94), (3811.0, 76.02), (3800.0, 99.29), (3792.0, 82.14), (3780.0, 79.32), (3776.0, 84.42), (3753.0, 94.54), (3749.0, 76.94), (3702.0, 96.92)]|
|SPY Combo: [379.94, 390.06, 385.0, 370.21, 375.27]|
|NDX Combo: [12303.0, 12499.0, 11678.0, 11886.0, 12707.0]|