Futures are unchanged overnight at 4150, ahead of today’s CPI (8:30 AM ET) & FOMC Minutes (2pm ET). Key levels are in line with the last several days:
- 4100-4110 (SPY 410) is the pivot line
- Resistance overhead is at 4140 (SPY 413), 4150 (Large Gamma Strike) & 4160 (SPY 415)
- Support shows at 4060 (SPY 405) – 4060
Ahead of today’s data we are seeing a bit of a bid to short term, downside IV. This can be seen below in the plot of fixed strike SPY IV. The shades of red to the left & top of the black line indicate IV has increased which we generally consider a signal of long option demand. This is a fairly subtle change, but indicates traders are not looking to go short vol into today’s prints. Considering that IV is down near 1 year lows, there is little value in being short IV at these levels.
To this point we see todays ATM straddle trading at $40 (ref: 4110, IV 37%). This is a fair discount to the +50% IV’s we’ve seen for recent CPI events. For much of last year CPI was seemingly the primary focal point for traders, and its clear anxiety around these prints has come down.
Interestingly, it seems that there is still some IV contraction (blue shades in the heatmap) at call strikes >420, for longer dated expirations. We have recently discussed how >=420 SPY/4200 SPX has been a major resistance area over the past year, and this contraction in IV seems to suggest that there is currently low long call demand out in time.
Our base case here is that both the CPI & FOMC will be non-events, and market flows will continue to trade around these big gamma strikes. While we see IV/vanna as less of a driver here, any subtle decline in IV should still be seen as a light market tailwind. The path of least resistance for a major jump in IV is clearly higher, but that would take a deviant data point or other catalyst which is unlikely. Additionally the large positive gamma may lead to the suppression/reversion of an IV spike, particularly with the S&P > 4000.
Further, we are only about a week out from April monthly OPEX, and so charm should start becoming a factor. As you can see below 4000-4150 is a range of large gamma strikes, and we see charm related flows as leading to consolidation around these strikes as options decay. Some “less bullish” data today may push the equilibrium closer to 4000 for OPEX, while some “in line” data may keep release the S&P up towards 4150 for OPEX.
For these reasons we are fairly neutral on markets in the 4000-4150 range. In this zone we look for mean reversion around the large gamma strikes noted above, and see little directional edge. A close above 4150 is considered bullish, as it implies a test of the 4200 Call Wall. We think its unlikely that the S&P breaks 4200 into 4/21 OPEX, as we see heavy resistance above that Call Wall level. Finally, our high risk signal is a break of 4000, which implies a test of 3900.
|
SpotGamma Proprietary Levels |
SPX |
SPY |
NDX |
QQQ |
RUT |
IWM |
|
Reference Price: |
$4108 |
$409 |
$12964 |
$315 |
$1786 |
$177 |
|
SpotGamma Implied 1-Day Move: |
0.99% |
0.99% |
||||
|
SpotGamma Implied 5-Day Move: |
2.69% |
|||||
|
SpotGamma Volatility Trigger™: |
$4095 |
$409 |
$11825 |
$315 |
$1900 |
$177 |
|
Absolute Gamma Strike: |
$4000 |
$410 |
$12525 |
$320 |
$1800 |
$180 |
|
SpotGamma Call Wall: |
$4200 |
$420 |
$12525 |
$320 |
$1735 |
$179 |
|
SpotGamma Put Wall: |
$3900 |
$400 |
$11000 |
$300 |
$1750 |
$170 |
|
Additional Key Levels |
SPX |
SPY |
NDX |
QQQ |
RUT |
IWM |
|
Zero Gamma Level: |
$4227 |
$447 |
$12552 |
$347 |
$1762 |
$206 |
|
Gamma Tilt: |
1.2 |
0.87 |
1.8 |
1 |
0.66 |
0.57 |
|
SpotGamma Gamma Index™: |
0.86 |
-0.11 |
0.047 |
0.004 |
-0.021 |
-0.075 |
|
Gamma Notional (MM): |
$4B |
$7.3B |
$27M |
$3.3B |
$115M |
$3B |
|
25 Day Risk Reversal: |
-5.25% |
-4.83% |
-4.87% |
-4.96% |
-4.65% |
-5.11% |
|
Call Volume: |
377K |
1.4M |
7.8K |
556K |
16K |
281K |
|
Put Volume: |
743K |
2M |
5.6K |
635K |
24K |
511K |
|
Call Open Interest: |
5.9M |
6.8M |
54K |
4.6M |
172K |
3.3M |
|
Put Open Interest: |
11M |
14M |
61K |
8M |
327K |
7.3M |
|
Key Support & Resistance Strikes |
|
SPX Levels: [4200, 4150, 4100, 4000] |
|
SPY Levels: [415, 410, 405, 400] |
|
NDX Levels: [14000, 13000, 12525, 12500] |
|
QQQ Levels: [320, 315, 310, 300] |
SPX
SPY
NDX
QQQ
RUT
IWM
SPX Gamma Model
Apr 12
$3,308
$3,758
$4,208
$4,931
Strike
-$1.5B
-$807M
-$107M
$1.1B
Gamma Notional
Put Wall: 3900
Call Wall: 4200
Abs Gamma: 4000
Vol Trigger: 4095
Last Price: 4108