Informe Option Levels

Macro Theme:

Major Resistance: $4,350 (SPY $435 Call Wall)
Pivot Level: $4,300
Interim Support: $4,250
Range High: $4,400 Call Wall
Range Low: $4,000 Put Wall

‣ We are neutral on the S&P, and looking for a window of weakness post 6/14 FOMC & 6/16 OPEX

Founder’s Note:

Futures are marginally higher to 4,395. Key SG levels are unchanged, with resistance at the 435 SPY Call Wall (SPX 4,350). Above that level we highlight 4,374. Support lies at 4,325, then 4,300.

Resistance in QQQ remains at the 360 Call Wall, with support at 355.

While this AM’s CPI is dominating discussions, implied volatility is various shades of unconcerned. On one had we have todays 0DTE SPX straddle trading at $32 (ref 4340, IV 28%), which is a CPI-day low since Jan ’22 (per GS, h/t ZH). On the other side that implied volatility is higher than it was one week ago as ATM IV has shifted from 11% to… 12% (looking out past the noise of the next few sessions).

If you dive in, what you see is that IV is asymmetrically bid for upside strikes, as shown in the fixed strike IV plot below. This is shown through the 1 month strikes >=4,365 having higher relative IV’s on a week over week basis. Through this IV lens one could argue that the positioning reflects a concern for missing further upside.

The point here is that we see signs of overextension, and crowded longs. Calls are a positive for markets, but “stock up, vol up” is not as the higher IV becomes unsustainable.

However, this can simply mean we are due for some consolidation, without having a full on bear market. This remains our forecast, as per yesterdays note.

If there is a concern here, its that the market is not positioned for a downside surprise given these low IV’s. An equity move >=1% can force short options players offsides, which can draw covering flow. This can exacerbate volatility.

Because we have the FOMC tomorrow and still have large June OPEX positions, we think that the equity price reaction to the CPI will be met with mean reversion (i.e. dip bought, rip sold). However, a number which elicits a move under 4,300 is a major concern for bears and places our models in a “risk off” stance.

In a “best case” scenario to the upside, we see major resistance at the 4,400 Call Wall.