S&P futures are flat at 4133, with NQ futures off 65 bps to 13,214. The S&P Call Walls have rolled higher, to SPY 410 (4115), and 4150 SPX. These are the key overhead resistance levels for today. To the downside we mark support at 4050.
With Friday’s move higher, we look for volatility contraction to start the week, due to the build in positive gamma and decrease in implied volatility.
Friday’s sharp move higher pushed the market through our key resistance level of 4080 (SPY 407), right up into the 4100 level. However, we did not see a huge meaningful demand for new call positions. It appears most of the volume was “day trading”, with 0DTE a fairly large 44% of SPX session volume. You can see the lack of change in call open interest plotted below (green) – note the chasm between the +1% S&P move higher and flatlined call open interest.
To this point, 4100 was the dominant volume strike on Friday, with a very large 165k call volume, but only a 250 lot change in open interest! That is a remarkably low change in OI for such large strike volume, and reiterates that very heavy day trading activity. Additionally an increase of 25k puts were added to the 4100 strike, which is why we now see the Call Wall at 4150. On the SPY side we did not register particularly large increases in call interest, with the largest being an increase of 42k at the 420 strike. It appears that the SPY Call Wall rolling higher (like the SPX Call Wall) is more the result of in-the-money calls being closed out, vs large build at strikes overhead. We see the same thing in QQQ – with a very large 300k in call volume (shown below) at the 320 strike, and a decrease in OI of -25k at that strike.
The point here is that whatever drove Fridays rally (month end flows, JPM hedging, 0DTE, etc), there was a noticeable lack of demand to hold call options at these equity levels. Friday also brought another drip in IV, which (on a 1 month basis) is down at 1 year lows (white line). This suggests that traders see very little risk going forward.