Informe Option Levels 14/02/2023

Futures are higher to 4150 as markets await the 8:30AM ET CPI print. Key SG levels are unchanged into the print, which means that we mark 4200-4210(SPY420) as our resistance line for today. Initial support shows at 4110(SPY410) – 4100. Below there we mark 4050, and finally the major, long term support line at 4000.

Note, too, there are two Fed speakers later today: Harker 11:30AM, Williams 2:00PM.

Todays 0DTE ATM straddle (ref 4145) is currently $67 with an IV of 36% which is a reduction vs previous CPI-day IV’s.  This implies traders are pricing in a ~1.5% move for today. Overall we think there is less chance of a +1.5% upside move vs a +1.5% downside move.  This is because hedging resistance should build to the upside due to positive gamma, while under 4100 there is likely more negative gamma.  By default our view is that CPI more or less comes in line, which leads to a reduction in implied volatility and markets testing the 4200 Call Wall.

With that in mind, if markets push higher today into tomorrow, that shifts the balance of Fridays OPEX to a call weighted expiration, which may generate market weakness/consolidation into early next week.

Conversely, a major CPI miss opens up the huge 4000 level to the downside into tomorrow. 4100 remains our gamma flip level, which is where our market view shifts from bullish (above) to bearish (below). Therefore a break of 4100 should invoke dealer shorting and a test of 4000 into Friday.

If we do have weakness into Friday, we would look for a bounce into early next week as Fridays expiration would be more put-heavy.

At a more macro level we believe that it is on-net bullish that the market is assigning lower levels of volatility to these macro data prints. Further, treasury bond volatility via the MOVE index remains well off of 2022 highs. On the surface this obviously implies that traders are more comfortable with the future path of Fed rate adjustments. However, from our options perspective lower volatility & price stability are bullish structural developments as liquidity should improve.