Futures are contracting, to 3770. Resistance remains at 3800, with support at 3749 then 3700. Positioning >=3800 remains light, despite the recent rally. Further we note the Vol Trigger moved lower to 3755 (from 3800) and the SPX Put Wall is back to 3600. These indicates puts being added.
We are searching for a reason to think this rally has more legs, but are struggling to find it.
On this point, despite a blistering ~5% rally in equities, we see that SPX call open interest only increased fractionally (5.98mm today vs 5.87mm y’day) and put interest increased markedly (10.89mm vs 10.4mm).
Below is total open interest for the US options market (all equities + index), and what you can see is only a slight budge in call interest – one would not expect a massive rally just occurred from just looking at this data.
Further, our Risk Reversal metric holds at a neutral -0.07, and other skew metrics continue to suggest traders are not releasing their put hedges. Recall that during other recent lows we saw that Risk Reversal metric push to a bullish -0.04, which suggested traders were selling OTM puts and/or buying OTM calls. This suggested some longevity to the rally. Doesn’t appear to be the case here.
We make an effort to be impartial in our market views until the data starts to assign an edge. The issue here is that we no longer have a reason to think the rally continues. Similarly, we don’t have a trigger for markets to just reverse and sink back to 3600 – except for the fact that put positioning remains large enough to quickly shove the market back down if selling starts. Violent reversals after options-induced rallies has been a “feature” of markets this year, as shown below.
Again, this is why we suggest that those in call positions may want to roll those positions higher to monetize gains and reduce risk. Further, put prices are a bit more reasonable now given the ~5% rally.
|SpotGamma Proprietary SPX Levels||Latest Data||SPX Previous||SPY||NDX||QQQ|
|SG Implied 1-Day Move::||1.25%,||(±pts): 47.0||VIX 1 Day Impl. Move:1.83%|
|SG Implied 5-Day Move:||3.08%||3589 (Monday Ref Price)||Range: 3479.0 | 3700.0|
|SpotGamma Gamma Index™:||-0.76||-1.39||-0.25||0.01||-0.07|
|SpotGamma Absolute Gamma Strike:||4000||4000||380||11750||280|
|Call Wall :||3835||3835||385||11750||288|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||3958||3984||394.0||11396.0||315|
|CP Gam Tilt:||0.78||0.79||0.63||1.11||0.69|
|Delta Neutral Px:||3962|
|25D Risk Reversal||-0.07||-0.06||-0.06||-0.07||-0.07|
|Call Open Interest||5,982,180||5,979,323||8,045,978||58,116||4,689,419|
|Put Open Interest||10,899,059||10,443,380||13,633,235||74,401||6,841,166|
|Key Support & Resistance Strikes:|
|SPX: [4000, 3900, 3800, 3700]|
|SPY: [390, 380, 375, 370]|
|QQQ: [300, 290, 285, 280]|
|NDX:[13000, 12500, 12000, 11750]|
|SPX Combo (strike, %ile): [(3836.0, 78.79), (3825.0, 74.86), (3749.0, 86.36), (3700.0, 89.53)]|
|SPY Combo: [368.9, 373.81, 382.51, 381.37]|
|NDX Combo: [11745.0, 11293.0, 11490.0]|