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:

ES Futures are +10bps to 4227 ahead of today’s expiration. While the SPX Call Wall holds at 4200, the SPY Call Wall has shifted higher to 422 (from 420), and QQQ Wall has rolled up to 340 (from 335). This implies calls were added to strikes above, which we interpret as bullish. We do mark the SPX as overbought with a breach of the 4200 Call Wall, however we have to consider the higher SPY wall, which creates an intraday resistance level at 4220 (SPY 422). Support below shows at 4175, the 4150.

Here are the statistics around a breach of the SPX Call Wall. The forward 1 & 5 day returns are negative, with a negative skew to the price distribution(s).

We’re having flashbacks to meme mania.

The 0DTE flow continues to be remarkable. Yesterdays ramp into the close, possibly triggered by some positive debt ceiling news, unleashed a flood of 0DTE flow which helped to drive the S&P 30 handles higher into the close. This flow is shown in teal, wherein at ~2:15PM the positive deltas jump markedly higher. This 0DTE flow adds leverage, and creates momentum driven markets. We can’t help but wonder if some larger HFT entities have taken to using 0DTE vs futures or equities as their way to trade headlines. Regardless, while this isn’t “Volmegeddon”, this is large directional 0DTE notional delta that invokes the chances of things breaking.

As noted above, several Call Walls popped higher and a great deal of this is driven by very short dated positions. 30-40% of near-the-money strikes expire today in the QQQ, and 50% of the 422 SPY Call Wall expires today. The point here is that these are not really long term call bets being made – they are speculative short term momentum trades. It very well could be that “real money” is out buying these AI names, but that trade is being turbocharged by this short dated call activity.

Reiterating this, we mark 39% of yesterdays single stock options volume as being tied to tomorrow’s expiration [“0DTE”]. These top options names had +50% of their options volume in 0DTE: UBER, AMC, META, PFE, MSFT, INTC, RIOT, TSLA, NVDA, AMD, MARA, NFLX, AI, CVNA, ARKK, COIN…you can obviously see the theme here (MEME+AI).

Below is NVDA and its call volume, and as you can see in blue it was the highest call volume since March ’22 and a level at which was seen frequently during the meme mania of 2021. The stock is now up 121% since Jan 1.

Today is capping off what has been a blistering week for these AI related names, with the S&P being up a more modest 1.3%.

This has served to add major size tomorrows expiration. What was yesterday a “meaningful” monthly expiration, has now turned into a quasi-quarterly sized expiration. To this point, below we have plotted single stock call delta (purple) vs put delta (teal) for each expiration. At yesterdays open the call figure was $25bn, and as you can see its now over $30bn. As a reminder we view call heavy expirations as leading to consolidation/weakness in the week after OPEX. In our view what this equity ramp higher has ironically done is improved the chance for downside next week.

Below is the framework that we have been working off of for the last several weeks. As you can see we are set to test the 4200 Call Wall resistance level which has been our max upside into today’s expiration. Our base view has been looking for consolidation post-OPEX and that remains, albeit its now staged from higher equity prices. Any move down to 4100 would be seen as simple consolidation, with a break below invoking a test of 4000. The trigger for more substantial selling remains with sentiment around the Debt Ceiling.

In the short term, the long tech trade now feels very frothy and overdone based on all the short dated call activity we are monitoring. If the indices remain below their Call Wall(s) then we do not consider the equities writ large overbought.