Informe Option Levels

Futures are flat to 3600 ahead of this mornings 8:30 AM ET CPI print. Resistance above is at 3648, then 3700. 3600 is our pivot line, with large support lines at 3559, 3548, then 3500. Our SG gamma index remains at levels which suggests peak volatility, and the VIX implies >2% daily SPX moves.

Given these volatility estimates, we see both 3700 (Absolute Gamma Strike) and the 3500 (Put Wall) in play for today. We continue to look for an extended directional move out of this CPI print into 10/21 OPEX. Those extended levels for the next several sessions are lining up to be 3800 (Vol Trigger) and 3400 (JPM collar strike).

Those wider levels (3800/3400) are both about 5% out from current futures levels (3600), which is of similar magnitude to recent moves. This large market move may be driven by sizeable 10/21 October expiration put positions which likely see a rapid change in value from todays CPI.

With the VIX at 34 and Fridays SPX IV around 47%, traders are clearly braced for large movement. Shown below is skew(dark blue line) and open interest for 10/14 SPY expiration. The shape of the skew is interesting, as it has a domed shape which implies traders are long ATM positions, and possibly short OTM positions. You can also see there are some fairly concentrated OI strikes at 370, 360 and 350 which may act as magnets for todays session.

Again, our we believe the markets direction out of the AM CPI will extend for several days. That being said, we cannot help to give a slight edge to bulls here due to these very elevated IV levels. With traders braced for a really ugly print, anything “less than ugly” may be enough to burst that elevated IV which should translate into dealers buying back deltas (vanna flow). The challenge for bears here is that it has to be a really nasty CPI print for these expensive, high IV puts to pay off.