Futures are down to 3720 from overnight highs of 3775. Major levels are little changed for today. We see resistance at 3757, then 3800. Support shows at 3711 to 3700, then 3651.
Our core theme here has been that directional move from last weeks CPI to Fridays OPEX, and we assigned a directional edge for higher markets due to put decay. While markets are ~4% higher from last Friday it has obviously not been smooth sailing. We are also not seeing many big shifts from the big, core options positioning and so we have no reason to look for a push above the 3750 (Vol Trigger) to 3800 area before Friday.
With such high intraday volatility, we need to zoom out. The big strikes lining up for Friday appear to be 3700, 3750 and 3800 which we’re seeing as the “fair value” range into Friday. There is a theme here of puts open interest being reduced, and call interest building, which should help stabilize markets – however Fridays OPEX is just going to reduce ~20% of open interest which is a volatility booster.
The volatility, as demonstrated by futures overnight, continues to be immense. In this put-heavy market our models project high volatility, but it feels like we’re seeing something higher by an order of magnitude. While this stage is set by the challenging macro backdrop, we see this “day trading” of options flow as a major culprit (as discussed Monday).
Yesterday, for example, we measured 40% of SPX volume as having traded in only yesterdays expiration. That 40% of trading volume is against meager open interest (no strike expiring yesterday had open interest (calls+puts combined) >3,750 contracts. In other words – its pure day trading. We did see some of that “day traded” volume coming in around key SG levels, like the 3700 support level. In fact, yesterdays expiration 3700 strike held the largest volume at 90k contracts. So, there may be a bit of method to the madness.
Our point here, is that we feel this is a recipe for things to break and it elevates risk. The challenge here is that it is a risk to forecast, because its “day traded volume” that doesn’t appear in overnight open interest. The risk, we feel, is that of a major headline or other data point that either catches this short dated volume offsides, and/or triggers an overwhelming flood of directional volume. This really could inflict one of those “liquidity cascades” mentioned Monday – which is why we highlight this phenomenon again this morning.
Longer dated positions (i.e. “real open interest”) should be a stablizing force here, for now. However as mentioned at the top we see 20% of total options positioning being removed, and so that may allow markets to swing even wider.
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 3721 | 3721 | 371 | 11151 | 271 |
| SG Implied 1-Day Move:: | 1.24%, | (±pts): 46.0 | VIX 1 Day Impl. Move:1.93% | ||
| SG Implied 5-Day Move: | 3.03% | 3585 (Monday Ref Price) | Range: 3477.0 | 3694.0 | ||
| SpotGamma Gamma Index™: | -0.79 | -1.07 | -0.30 | -0.01 | -0.09 |
| Volatility Trigger™: | 3750 | 3725 | 375 | 11350 | 273 |
| SpotGamma Absolute Gamma Strike: | 3700 | 3700 | 370 | 11750 | 270 |
| Gamma Notional(MM): | -512.0 | -454.0 | -1624.0 | -1.0 | -628.0 |
| Put Wall: | 3600 | 3600 | 360 | 11000 | 265 |
| Call Wall : | 3900 | 3835 | 390 | 11750 | 280 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 3824 | 3795 | 381.0 | 11134.0 | 290 |
| CP Gam Tilt: | 0.79 | 0.77 | 0.6 | 0.94 | 0.63 |
| Delta Neutral Px: | 3803 | ||||
| Net Delta(MM): | $1,582,367 | $1,628,575 | $201,676 | $36,915 | $94,810 |
| 25D Risk Reversal | -0.03 | -0.04 | -0.03 | -0.01 | -0.01 |
| Call Volume | 710,211 | 576,625 | 3,631,831 | 5,474 | 1,111,242 |
| Put Volume | 1,069,948 | 1,092,388 | 4,475,603 | 7,120 | 1,406,005 |
| Call Open Interest | 7,300,010 | 7,165,994 | 8,765,127 | 66,448 | 5,289,724 |
| Put Open Interest | 10,972,726 | 11,000,581 | 14,549,536 | 69,456 | 6,664,299 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4000, 3800, 3750, 3700] |
| SPY: [380, 375, 370, 360] |
| QQQ: [280, 275, 270, 265] |
| NDX:[12000, 11750, 11300, 11000] |
| SPX Combo (strike, %ile): [(3900.0, 89.11), (3852.0, 78.18), (3837.0, 87.84), (3826.0, 77.49), (3752.0, 87.8), (3711.0, 76.85), (3703.0, 93.86), (3677.0, 75.61), (3662.0, 79.01), (3651.0, 94.5), (3625.0, 76.72), (3610.0, 84.81), (3603.0, 96.94), (3577.0, 74.19), (3562.0, 76.85), (3551.0, 89.63)] |
| SPY Combo: [359.25, 364.08, 369.27, 354.06, 388.94] |
| NDX Combo: [10883.0, 11095.0, 10683.0, 11006.0] |
