Futures are down 70bps to 3830. There were no material changes to SG levels overnight, with resistance at 3852 and 3876. Support shows at 3837 then 3800. While the S&P remains above 3800 our models assign a bullish directional edge to equities.
With yesterdays close the S&P/Nasdaq were up +3% in the 2 sessions post Oct OPEX. Despite yesterday’s stock run, our Call Wall resistance remains at 3900. This suggests a lack of call positions building overhead. Having said that, we once again saw huge 0DTE SPX flow with 39% of all SPX options volume concentrated in Tuesdays expiration contract (see here on 0DTE flow).
New to the fray is a focus on earnings, with both GOOGL & MSFT down ~5% overnight. These earnings reports took futures down 1% from yesterdays closing high of 3874. We note these earnings for two reasons:
1) We think that the dynamics of light positive gamma (i.e. markets >Vol Trigger) helped to prevent a larger spill-over in the futures reaction and
2) This may dampen or reverse some of the “flat skew” flow sourced from heavy put selling and/or “crash up” call buying.
Skew aside, IV overall continues to deflate as shown by the VIX below. 1 month realized vol is currently ~26 and so the VIX at 28 is pressing down toward its “realized lower bound”. Additionally, because we’re only 1 week off from 11/3 FOMC, we don’t think that implied volatility will decline much further. We’d wager that not many traders want to head into FOMC short puts, which should serve to re-skewing #2 from above.
In summary: positioning dynamics were very favorable to a rally the last several days(weeks), and now seem to lining up such that 3900 could be a tough hurdle to jump (3900 Call Wall + vanna reduction).
Finally, we want to remind everyone of the speed at which prior rallies of similar magnitude have reversed. While we hold a bullish edge to markets while the S&P is >3800, the combination of bad liquidity and heavy 0DTE flow cast a shadow of persistent market instability. As we often say: put fueled rallies are subject to violent reversals, and it applies here.
Tomorrow, for example, is an 8:30AM ET GDP print, and an aberrant print could sparks that flat skew to unwind & easily pop markets back below 3800. This in turn could invokes negative gamma dynamics (i.e. fuel lower).
This is not meant to be fear mongering, just an acknowledgment of the embedded risks tied to options positioning. Accordingly, those interested in staying long may want to opt for the fixed risk of long calls vs long stock or short puts.
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 3860 | 3857 | 384 | 11669 | 284 |
| SG Implied 1-Day Move:: | 1.18%, | (±pts): 46.0 | VIX 1 Day Impl. Move:1.78% | ||
| SG Implied 5-Day Move: | 3.09% | 3797 (Monday Ref Price) | Range: 3680.0 | 3915.0 | ||
| SpotGamma Gamma Index™: | 0.62 | -0.01 | -0.00 | 0.03 | 0.03 |
| Volatility Trigger™: | 3770 | 3765 | 386 | 11000 | 279 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 420 | 11050 | 285 |
| Gamma Notional(MM): | 63.0 | 98.0 | -20.0 | 4.0 | -89.0 |
| Put Wall: | 3600 | 3600 | 360 | 10500 | 265 |
| Call Wall : | 3900 | 3900 | 450 | 11050 | 285 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 3849 | 3817 | 390.0 | 0 | 297 |
| CP Gam Tilt: | 1.2 | 1.06 | 0.93 | 1.38 | 0.94 |
| Delta Neutral Px: | 3915 | ||||
| Net Delta(MM): | $1,593,673 | $1,696,526 | $44,378 | $50,337 | $92,367 |
| 25D Risk Reversal | -0.06 | -0.04 | -0.05 | -0.1 | -0.08 |
| Call Volume | 625,627 | 541,742 | 2,727,645 | 8,422 | 990,775 |
| Put Volume | 995,035 | 1,013,105 | 3,967,397 | 7,564 | 1,173,998 |
| Call Open Interest | 6,356,667 | 6,578,613 | 2,334,190 | 57,257 | 4,388,663 |
| Put Open Interest | 11,041,414 | 10,867,793 | 2,202,496 | 56,837 | 6,906,858 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4000, 3900, 3850, 3800] |
| SPY: [430, 420, 415, 360] |
| QQQ: [300, 290, 285, 280] |
| NDX:[12500, 12000, 11500, 11050] |
| SPX Combo (strike, %ile): [(4049.0, 76.32), (4003.0, 88.98), (3953.0, 94.37), (3926.0, 73.57), (3903.0, 98.42), (3887.0, 77.26), (3876.0, 88.29), (3868.0, 72.98), (3860.0, 75.27), (3852.0, 96.92), (3837.0, 86.22), (3702.0, 84.7)] |
| SPY Combo: [389.15, 384.15, 394.16, 399.16, 386.46] |
| NDX Combo: [11705.0, 11903.0, 11577.0, 11658.0, 11495.0] |
