Informe Option Levels

Futures are up slightly to 4145, implying that the S&P Index will open on the large gamma range of 4100-4110 (SPY 410). We consider this the pivot point around which the market is likely to mean revert. Around this key level we look for relatively low volatility and tight trading ranges. Resistance above shows at 4140 (SPY 413.5) – 4150. Support below remains at 4070 (Vol Trigger) & 4060 (SPY 405). Further we think the market holds tight today as it awaits tomorrows CPI & FOMC minutes.

The 407 & 408 strikes for SPY, and 4100 SPX strike was where most of yesterdays volume was concentrated. These tight trading ranges around high volume & high gamma strikes should continue to weigh on implied volatility which hovers near 1 year lows. Shown below is VOLI, which measures 30 day ATM SPY IV. While we do not think IV moves materially lower, it can remain low for some time and that catalyst would have to be significant enough to break the volatility-suppressing forces of positive gamma.

What’s more unique here is skew, which is making recent lows, but remains elevated above 1 year lows. Below we have plotted SDEX & VVIX, but you can also reference other skew measures like our Risk Reversal (-.05). What you may notice is that skew spiked due to tail risk hedging into the early March bank crisis. While current levels of skew and/or IV are not suggestive of any material hedging, it is interesting to note that some of the more extreme put-selling/lack of tail demand of late ’22 may have faded. This implies that volatility may be a bit more responsive to future selloffs.

If the market resumes an upside grind we think further reductions in IV don’t add much of a tailwind. As shown in the red box below, our IV adjusted delta (purple) is lower than unadjusted delta, which implies less dealer selling into upside moves (i.e. positive gamma is slightly reduced). However, at this point the impact it’s debating “shades of gray”, particularly on moves >4150. At this point the hedging flows into higher market prices are likely to create sticky upside movement, regardless of IV decline.

While we think this positive gamma dynamic throttles upside, it also provides support as hedging flows should spur buying into selloffs, much like we saw yesterday off of the 4075 lows. The takeaway here continues to be that traders looking to play upside are likely better off in single stocks, which have different positional dynamics.

We see many tech names like AMD, NVDA, & MSFT with large gamma strikes 3-5% and largest gamma expirations at 4/21. Having larger positions at the monthly expiration suggests more stability to price action than transient, weekly expirations. Large weekly expirations can create high volatility, but rapid price adjustment as large positions expire.

Below is a EquityHub snapshot from AMD, which shows large support at $94 (Hedge Wall), and large call positioning up at the $100 level. We think these types of setups present better relative opportunities in the short term.

There are some outside chances of tomorrows data creating some downside price action. As we have stated several times in recent days, it is unlikely we get a large, unrelenting move lower until/unless the S&P breaks the 4000 strike. We think it would likely take at least 2 trading sessions to get down to and digest that large 4000 gamma level.  To this point, when you look at something like AAPL’s fairly bad news & -2.5% yesterday – the market shrugged that off and closed unchanged. News seems to matter less with lots of positive gamma padding.

Finally, we wanted to direct you all to two recent presentations we’ve put together:

1. “The Impact of 0DTE”: https://youtu.be/hNJEcNOyNg8
2. Call Wall & Put Wall Stats – Plus a sneak peak at the “HIRO Volatility Alert” which is set to arrive in a few weeks: https://youtu.be/Fh_dUzy25G0