Futures are down to 3595 from overnight highs of 3635. Levels are largely the same with the exception of the SPY Put Wall, which shifts to 350 (from 360). The SPX Put Wall remains at 3600, but size is building at 3500. This lower SPY wall suggests that the 360/3600 Put Wall that has been holding up markets, is starting to roll lower and is weaker. With that we see support at 3558 then 3500. Resistance is at 3600 then 3648.
There is not a great reason to short volatility and/or sell puts here, which would relieve market pressure. Similarly shorting here, ahead of the CPI, doesn’t seem to offer a great risk reward. However, this deep negative gamma position signals that dealers must actively hedge with the market, and this continues to turn simple short term chop into larger trading swings.
The first real chance at more clear, persistent directional flow is Thursdays CPI reading. We continue to see this as a trigger for a large, extended directional move into October 21st expiration.
The issue with markets breaking down below 360/3600, is that positioning below is only puts. SPY is what we are watching here, as many of these SPY strikes below are of an order of magnitude larger than equivalent SPX positions.
These “pure-put” zones are where we can often experience maximum volatility (as discussed last night), and if we break down into 3500 that drags resistance lower, too. For example out of Sep OPEX we didn’t see much resistance until 3800, but now positions have filled in at 3700 (Absolute Gamma Strike).
Another way to look at this is to recall that at the end of September we discussed the idea that the market had a “max put” position based on several indicators like Delta & Gamma Tilt. The S&P was then at 3600. The Sep 30th expiration, combined with the ensuing ~4% equity rally, alleviated that max put position. Seen through one lens, this implies that the market will not be at max puts again until closer to 3500.
Market drift can force hedging flows, and so while we give edge to the SPX holding 3600 today, we must respect the price action on a break of that level. Further, ultra-short-term traders will still be jockeying their “pre-CPI” expiration positions which can cause large swings in this market. Therefore we don’t assign a lot of value to price action into Thursday AM.
As noted above, the edge which may come after Thursdays CPI is that it may force traders to adjust positions, the bulk of which are tied to 10/21 OPEX. These are likely more material & persistent flows.
|SpotGamma Proprietary SPX Levels||Latest Data||SPX Previous||SPY||NDX||QQQ|
|SG Implied 1-Day Move::||1.26%,||(±pts): 46.0||VIX 1 Day Impl. Move:2.05%|
|SG Implied 5-Day Move:||3.08%||3640 (Monday Ref Price)||Range: 3528.0 | 3753.0|
|SpotGamma Gamma Index™:||-1.73||-1.68||-0.40||-0.01||-0.11|
|SpotGamma Absolute Gamma Strike:||3700||3700||360||11750||270|
|Call Wall :||3835||3835||420||11750||315|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||3941||3921||393.0||11325.0||304|
|CP Gam Tilt:||0.51||0.47||0.42||0.7||0.44|
|Delta Neutral Px:||3920|
|25D Risk Reversal||-0.06||-0.08||-0.06||-0.07||-0.07|
|Call Open Interest||6,608,820||6,423,128||8,068,503||61,044||4,728,754|
|Put Open Interest||11,201,379||11,079,083||13,268,480||84,762||6,765,771|
|Key Support & Resistance Strikes:|
|SPX: [4000, 3700, 3650, 3600]|
|SPY: [370, 360, 355, 350]|
|QQQ: [290, 280, 270, 265]|
|NDX:[12500, 12000, 11750, 11500]|
|SPX Combo (strike, %ile): [(3749.0, 77.19), (3699.0, 86.11), (3648.0, 90.87), (3623.0, 81.35), (3608.0, 88.06), (3601.0, 97.73), (3576.0, 79.31), (3558.0, 84.12), (3551.0, 94.65), (3525.0, 82.88), (3511.0, 87.48), (3500.0, 97.57), (3450.0, 91.18)]|
|SPY Combo: [358.94, 348.86, 353.9, 343.82, 363.62]|
|NDX Combo: [10761.0, 10958.0, 10553.0, 11373.0, 10881.0]|