Macro Theme:

 

Major Resistance: $4,150

Pivot Level: $4,100

Critical Support: $4,000

Range High: $4,200 Call Wall

Range Low: $3,800 Put Wall

Events: 4/12 CPI, FOMC Mins

‣ $4,200 is likely heavy resistance into April 21st OPEX

‣ High market volatility is unlikely with SPX >$4,000 due to positive gamma positioning.

‣ 1 Month IV is at lows near 16%, which is likely a long term low which reduces equity vanna tailwinds. It further implies that longer dated IV may be reasonably priced.

 

Founder’s Note:

Futures are flat to last nights close at 4120. This indicates the cash open will be below the key pivot level of 4100-4110 (SPY 410). Key support remains at 4060 (SPY 405) – 4050. Resistance is at the 4130, which is the SPY 412

Call Wall

.

Neither bulls nor bears found anything particularly compelling out of yesterdays data, and we saw clean mean reversion around key large options strikes. 4150 was the largest call

vol

ume strike with +100k

vol

ume, and similar amount was traded at the 4100 puts. We think the relatively low

IV

led options sellers to have to sell strikes closer to the money – and to this point we see +18k calls added to 4150, and enough 412 SPY calls added (+40k

OI

) to shift our SPY

Call Wall

to 412. Put action was unimpressive.

Looking at implied

vol

atility, there was a reduction in

IV

at upside strikes which indicates traders on net selling calls. This is portrayed by the blue areas to the right of the black dotted line.

Ultimately, these

vol

umes and

OI

adjustments were not terribly large. The end result of this is that gamma has increased in the 405/4050-415/4150 range which reinforces our view of this being a sticky price range.You can see how large the gamma strikes are below for calls (orange) and puts (blue). While gamma is largely concentrated around 410/4100, we note there remains a lot of gamma down at 4000 which should continue to be an prominent support level into next weeks expiration.

 

On the topic of expiration, we see charm now becoming increasingly important. April expiration is currently call weighted, as implied by the larger call gamma (orange) vs put gamma (blue) for April OPEX. This imbalance backs the idea that the S&P is in a positive gamma regime, which should serve to keep

vol

atility muted. As gamma increases inversely to time, gamma related to April OPEX hedging flows should tighten around strikes with large positions.

 

As unexciting as all this may be, yesterdays activity seems to just play into the existing setup. Below is our price map from yesterdays note, and we see little reason to shift from this. Options flows should continue to restrict

vol

atility/pin price action, and there are only three conditions that change this:

1. Prices have to break $4,000 – however options flows should be restricting

   vol

   atility into next week. It therefore likely takes several days to grind down and test $4,000

2. Very large, meaningful positions have to come in – this is rather unlikely as we’d need a catalyst
3. A large expiration needs to remove at-the-money positions – this is not a factor until next Friday’s April OPEX