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Informe Option Levels

May 18, 2023 | Informe Option Levels

Macro Theme:

Major Resistance: $4,150 – $4,160 (SPY $415)
Pivot Level: $4,130 (SPY $412)
Interim Support: $4,100
Major Support: $4,000
Range High: $4,200 Call Wall
Range Low: $4,000 Put Wall

‣ IV lows coincide with the $4,200 Call Wall to create $4,150-$4,200 area resistance into May OPEX
‣ A break of 4100 is “risk off”, likely invoking a test of $4,000
‣ Equities may enter a “window of weakness” starting with 5/17 VIX & 5/19 OPEX

Founder’s Note:

Futures are up slightly to 4,175. Despite yesterdays large move higher, key SG levels are largely unchanged. Resistance above shows in a band around 4,165 (SPY 415) to 4,175, then the 4200 Call Wall. Support below is at 4,150, 4,130 (SPY 412), then 4,100. While our view has been for volatility to increase starting with yesterdays VIX expiration, we do not anticipate a repeat of yesterday’s 1.2% rally due to the Call Wall(s) overhead.

In QQQ the large support level into tomorrow is 330, with the Call Wall up at 335 (up from 330 yesterday). This suggests tech continues to have more relative upside available vs S&P.

While there were several catalysts for yesterdays move higher, 0DTE was a clear accelerant. There was huge 0DTE call buying which started around 12:30 ET, as shown below. Shortly after 1pm that 0DTE call buying shut off, and the market made one attempt at a push higher but that failed.

The move up pushed the S&P up over the large 4,150 strike which adds to positive gamma and should reduce volatility, particularly to the upside. This is now into the major top/resistance area we have been highlighting in our “Macro Theme for many days. These 4100-4200 strike positions are all reduced with tomorrows expiration.

Implied volatility was crushed, which has thoroughly drained any vanna tailwind. You can see this through our vanna model, in which the purple IV-adjusted delta is flat to the standard delta model (right image). On the left is yesterdays snapshot, which shows a modest delta decline if implied vol’s went lower. When deltas decline we believe dealers will cover negative delta hedges (i.e. buy futures).

What’s somewhat odd here is that put volumes were quite elevated in QQQ yesterday, as shown below in red. Call volumes (blue) were quite average, but we did see upside strike IV increase which suggests very short dated call buyers. The same volume phenomenon was true for SPY, without the IV bid. Put selling due to a favorable debt ceiling outlook could be the culprit, as IV’s declined.

Every once in a while we see a “What the heck?!?” data point, and that occurred with yesterdays IWM call volume. This is the largest call volume since Dec ’21, and appears to be a top 10 call volume print. Speculation is dip buyers are active, as was the case in other beaten-up sectors like regional banks.

To get a relative interpretation of whats happening here, we look at skew for QQQ, IWM & SPY. As you can see there are higher upside IV’s for QQQ/IWM vs SPY. Whats unique about this is that IWM is coming off of major lows, while QQQ is at fresh highs. Both skews imply some long option demand, particularly to the upside whereas this is not apparent in SPY. QQQ is the breakout play, IWM is the “buy the dip” play, and SPY is stuck in the middle.

Ultimately yesterdays move does not change our outlook, except to add a bit more padding to the key risk line of 4,100. We have been favoring expressing upside in tech, and the relative IV bid and higher QQQ Call Wall still supports that view. We continue to believe that OPEX opens a window of weakness (per Monday’s note), of course Biden announcing a “debt deal” on Sunday would change that dynamic.

 

SpotGamma Proprietary Levels

SPX

SPY

NDX

QQQ

RUT

IWM

Reference Price:

$4158

$415

$13588

$331

$1774

$176

SpotGamma Implied 1-Day Move:

0.85%

0.85%

SpotGamma Implied 5-Day Move:

2.36%

SpotGamma Volatility Trigger™:

$4145

$414

$12875

$329

$1750

$175

Absolute Gamma Strike:

$4150

$412

$13500

$330

$1780

$175

SpotGamma Call Wall:

$4200

$420

$13550

$335

$1780

$178

SpotGamma Put Wall:

$4000

$400

$11000

$328

$1700

$170

Additional Key Levels

SPX

SPY

NDX

QQQ

RUT

IWM

Zero Gamma Level:

$4103

$414

$12476

$328

$1810

$180

Gamma Tilt:

1.289

0.882

1.996

1.06

0.930

0.690

SpotGamma Gamma Index™:

1.403

-0.138

0.067

0.021

-0.006

-0.06

Gamma Notional (MM):

$556.848M

‑$629.118M

$9.523M

$155.185M

‑$9.258M

‑$710.621M

25 Day Risk Reversal:

-0.051

-0.066

-0.05

-0.048

-0.051

-0.062

Call Volume:

642.312K

2.304M

12.246K

766.394K

20.029K

613.242K

Put Volume:

1.039M

3.31M

8.512K

1.35M

48.001K

825.746K

Call Open Interest:

6.538M

7.474M

61.371K

4.803M

208.722K

3.634M

Put Open Interest:

12.901M

14.913M

68.554K

9.427M

372.11K

7.839M

Key Support & Resistance Strikes

SPX Levels: [4200, 4150, 4100, 4000]

SPY Levels: [415, 414, 412, 410]

NDX Levels: [14000, 13500, 13450, 13000]

QQQ Levels: [330, 328, 325, 320]

SPX Combos: [(4350,92.38), (4325,85.32), (4321,90.62), (4308,78.88), (4300,98.67), (4279,74.98), (4275,92.23), (4259,86.17), (4250,97.73), (4229,90.31), (4225,95.21), (4221,91.51), (4217,88.22), (4209,97.13), (4205,88.44), (4200,99.71), (4196,89.27), (4192,95.82), (4188,87.17), (4184,83.49), (4180,94.85), (4175,98.04), (4171,88.93), (4159,87.24), (4150,94.24), (4146,80.21), (4138,90.49), (4125,92.47), (4109,86.78), (4088,81.70), (4059,81.20), (4051,88.94), (4026,79.53), (4009,87.76), (4001,96.04), (3976,75.99)]

SPY Combos: [424.33, 408.97, 434.3, 403.99]

NDX Combos: [13751, 13955, 13670, 13711]

QQQ Combos: [319.99, 334.23, 339.2, 333.24]