Informe Option Levels

Macro Theme:

Major Resistance: $4,200 (SPY $420 Call Wall)
Pivot Level: $4,150 (SPY $415)
Interim Support: $4,100
Range High: $4,300 Call Wall
Range Low: $4,000 Put Wall

‣ A break of 4100 is “risk off”, likely invoking a test of $4,000
‣ $4,000 is considered material, long term support

Founder’s Note:

Futures have slipped lower to 4,150. For today the key SPX levels are 4,150 & 4,160 to the upside, followed by 4,200. To the downside, the big level is 410 SPY (4105 SPX). IV also has some bounce this AM, with the VIX at 19.58.

The post-OPEX consolidation/mean reversion appears to be upon us, with the S&P set to open around 4,130. This was the key price area from a week ago, before VIX expiration & AI mini-mania sparked an equity move higher. Narratives are now growing around the debt ceiling, but the increase in headlines (and anxiety) is/was to be anticipated as the June 1 x-Date “window opening” approaches.

Further that AI-breakout is on ice, as many of those most-squeezed names are pulling back (ex: NVDA 304 pre-market, down from 318 on Thursday).

The first major area of support we’ve been highlighting is 4100, with SPY 410 specifically having the large options gamma. Accordingly, we’re looking for 4,100 to be an interim low, if tested. Should 4,100 break we think it invokes a quick test of 4,000, which should then offer strong longer term support.

“Mean reversion” is our primary theme today. This applies not only to the equity prices post-OPEX, but also implied volatility. We’ve been bellyaching about the depressed short dated IV’s which were (and likely still are) “priced for perfection”, and anything less than perfection would spark volatility. This is because if, as a simplistic example, you sell a 50bps straddle and the market moves >50bps, you may have to start covering. That covering can reflexively spark hedging flows which invoke further volatility.

As you can see the SPX term structure has started to flatten out as SPX shifted down, as shown in white. However, these IV’s are only in the 14-16% range, which is just a short leg up from 1 year lows (yellow box). Equivalent IV’s back prior to the March bank crisis were all 18-20%. The point here is that IV has just shifted from 0 risk premium, to just reflecting daily moves (1 month RV is 14%).

A whiff of risk-off likely sees SPX IV’s move very quickly to the 20’s which would correspond with a break of 4,100. We don’t think that’s in the cards for today, but something to consider as we shift toward next week’s & the initial x-Date. Our base case here is that IV will increase as time to x-date decreases.