Macro Theme:

Short Term Resistance: 4,500

Short Term Support: 4,450

Risk Pivot Level: 4,500

Major Range High/Resistance: 4,600 SPX Call Wall

Major Range Low/Support: 4,400 SPX Put Wall

‣ Catalysts this week: VIX Exp & FOMC (20th). *

‣ Our trade is to enter “long volatility” positions out of CPI & into FOMC, with current ATM IV’s for a 30 day SPX option ~12% (too low, in our view). A bullish CPI/FOMC could produce a sharp upside shift, in which case we’d target >4,600 into the end of Sep. A bearish reaction could move the market <4,400. We think the market is underpricing market movement out of these events.*

*updated 9/18

Founder’s Note:

Futures are flat at 4,505. Following Friday’s OPEX, SPX resistance is at 4,465 then 4,500. Support is at 4,450 then 4,425. Due to the large OPEX positions clearing on Friday, our 1 Day range is now 0.82% (from low 0.50%’s).

For today, the daily ranges have officially expanded which backs chances for large directional swings. 4,400 and 4,500 are the likely bounds for into Wednesdays FOMC.

Our view has been that volatility will expand after last week’s CPI/OPEX, and a directional trigger would be pulled with Wednesday’s VIX Exp + FOMC. We’re still of this view, and its being reflected in our models, above.

We also felt that the decline in IV following Wednesday’s benign CPI reading would buoy the SPX >=4,500 on Friday, and likely into this Wednesday. The upward pressure on equities would be the result of declining implied volatility. This view appeared to be unfolding before the market open on Friday, as equity futures were higher and the VIX was at multi-year lows in the mid-12’s.

For Friday’s OPEX the two largest gamma levels were 4,500 & 4,450. The 4,500 level was very large for the SPX AM expiration (~120k contracts), with 450 also being large for the PM SPY expiration. 445 SPX/4,450 SPX were the second largest gamma strikes for Friday’s OPEX.

Once the market opened just under 4,500 on Friday, the SPX never had a chance of holding that level. Large and persistent negative 0DTE deltas (teal) were applied, and those flows first paused at 445 SPY (green box, ~4,460 SPX), then reignited around 1PM ET until the SPX hit 4,450 (red box). Once that 4,450 level was hit, negative deltas flattened out for the remainder of the session. In other words, the downside equity pressure was removed when those major, lower gamma strikes were hit. Based on this, it seems as though OPEX flows were the major driver of Friday’s price action.

We flag Friday’s movement here for a few reasons: First, our estimate for Friday’s price action was clearly off, and we seek to own that. Additionally, we need to review what we may have missed to assess our view going forward.

In this case, there is a clear equilibrium at 4,450-4,500 as seen below. The SPX spent the month of September in this box, and everything seemed lined up for SPX to push above this equilibrium given the large gamma & dwindling IV’s. The market wouldn’t take the bait, and it seems clear that 4,500 is now more of a major bull/bear

pivot,

with options flows themselves not enough to pop this level. Further, 4,500 is likely major resistance into Wednesday.

While Friday’s reversal has muddied the very short term pre-FOMC picture, we stick to the idea that FOMC will spark a large directional move into the end of September. Our target zones >4,600 & <4,250 seem rather far off, as both are ~5% from current SPX levels. However, the gamma has been cleared after OPEX, FOMC is set to trigger not only macro flows but shifts in IV, and the Sep quarterly options are staged to trigger hedging flows (see here & here).