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.