Futures were flat overnight, holding 4125. 4100 – 4110 (SPY 410) is the pivot level, with resistance above at 4141, then 4150. Support is at the 4055 area which is a meeting of: Vol Trigger, SPY 405 & SPX Large Gamma 4050 SPX.
We now see some fairly large gamma bars forming overhead, and the SPY Call Wall contracted from 420 to 414. Of particular note is SPY 410, which has formed large positions (left chart) which helps to establish this is a pivot/pin area. This is then followed by several large gamma SPX gamma bars at upside strikes, including the 4150 Call Wall (right image). In line with our discussion yesterday morning, this creates sticky upside which slows upside momentum. Further, IV is at lows which zaps any type of vanna tailwind, and charm is a non-factor with expiration several weeks away.
The vanna model reflects both the delta & implied volatility dynamic in the S&P. Note to the right of ~4115 (SPY 410) we see that both pure delta (grey) & our IV adjusted delta (purple) start to increase. This suggest that long delta exposure of liquidity providers (dealers & market makers) is increasing as the market rises. The implication here is that futures need to be sold to hedge into upside SPX movement.
There is something about this 4150 area which has, outside of a brief August break, capped the S&P upside for over a year (SPX in orange). These S&P 4150 area peaks coincide with lows in 1 month IV (white), which has been consistently “bouncing” at 16%. While technical analysis on IV measures (or the VIX, for that matter) will draw sneers from options aficionados, this IV of 16% represents 1% SPX daily moves. As SpotGamma readers know, 1 month S&P realized volatility has not been under 16 since early in January 2022. Its fair to say the world has changed quite a bit sense then, which has been producing higher levels of volatility. IV <16% has been too cheap. While “long IV not paying” has been a recent theme, we’re not so sure you want to be short it here.
With IV back at 1 year lows we are starting to see VIX call positions rebuild (blue line). You may recall that back into March VIX expiration there were record VIX call positions, however that expiration led to a 50% reduction in total VIX open interest. That call open interest is now starting to rebuild at upside strikes into April, as well as the 30 strike for longer dated expirations. If markets are severed up a volatility trigger, these call positions may accelerate the rate of implied volatility.
Overall our general sentiment from the last several sessions is unchanged. We now have fairly meaningful gamma positions at overhead strikes, and low IV which should slow volatility. As discussed yesterday, these upside positions are unlikely to shift until OPEX, and so that indicates to us that a “grind up” in the SPX is the best case scenario, and so traders are better off betting on upside via other equities/ETF’s.
To the downside we continue to think that sharp declines are unlikely until the SPX works lower into the 4000-4050 area – that is where gamma and IV are less supportive of markets (SPX must bend before it breaks). With the IV lows we continue to think owning some longer dated, slightly OTM puts are decent lotto tickets.
SpotGamma Proprietary Levels |
SPX |
SPY |
NDX |
QQQ |
RUT |
IWM |
Reference Price: |
$4091 |
$408 |
$13100 |
$319 |
$1769 |
$175 |
SpotGamma Implied 1-Day Move: |
1.07% |
1.07% |
||||
SpotGamma Implied 5-Day Move: |
2.69% |
|||||
SpotGamma Volatility Trigger™: |
$4055 |
$410 |
$11875 |
$310 |
$1900 |
$180 |
Absolute Gamma Strike: |
$4000 |
$410 |
$12525 |
$300 |
$1800 |
$170 |
SpotGamma Call Wall: |
$4150 |
$414 |
$12525 |
$350 |
$1735 |
$183 |
SpotGamma Put Wall: |
$3800 |
$400 |
$11000 |
$270 |
$1600 |
$170 |
Additional Key Levels |
SPX |
SPY |
NDX |
QQQ |
RUT |
IWM |
Zero Gamma Level: |
$4188 |
$452 |
$12563 |
$388 |
$1773 |
$221 |
Gamma Tilt: |
1.2 |
0.85 |
1.8 |
0.87 |
0.61 |
0.45 |
SpotGamma Gamma Index™: |
0.86 |
-0.17 |
0.042 |
-0.003 |
-0.023 |
-0.1 |
Gamma Notional (MM): |
$3.9B |
$9.4B |
$23M |
$271M |
$106M |
$3B |
25 Day Risk Reversal: |
-5.10% |
-4.86% |
-4.60% |
-4.84% |
-5.29% |
-5.51% |
Call Volume: |
528K |
2.1M |
6.3K |
573K |
16K |
335K |
Put Volume: |
928K |
3.4M |
6.6K |
827K |
26K |
1.2M |
Call Open Interest: |
5.8M |
7M |
53K |
946K |
166K |
3.2M |
Put Open Interest: |
11M |
14M |
59K |
1.6M |
312K |
7.2M |
Key Support & Resistance Strikes |
SPX Levels: [4150, 4100, 4050, 4000] |
SPY Levels: [412, 410, 408, 407] |
NDX Levels: [14000, 13000, 12525, 12000] |
QQQ Levels: [310, 300, 290, 270] |
SPX
SPY
NDX
QQQ
RUT
IWM
SPX Gamma Model
Apr 5
$3,295
$3,745
$4,195
$4,910
Strike
-$1.4B
-$796M
-$146M
$986M
Gamma Notional
Put Wall: 3800
Call Wall: 4150
Abs Gamma: 4000
Vol Trigger: 4055
Last Price: 4091