Macro Theme:

Short Term SPX Resistance: 4,558 (SPY 455 Call Wall)

Short Term SPX Support: 4,500

SPX Risk Pivot Level: 4,500

Major SPX Range High/Resistance: 4,600

Major SPX Range Low/Support: 4,200

‣ IV levels are anemic (~8%), which suggests that a pop higher in IV/equity downside is due. A break of 4,500 is our “risk off” level.*

‣ 4,600 is our current max upside target, as call positions are not yet building above that level.*

‣ We recommend expressing longs in RUT/IWM or Mag 7 vs SPX/SPY into year end, due to upside options positioning.*

*updated 11/22

Founder’s Note:

ES Futures are +7pts to 4,558. Key SG levels for the SPX are:

• Support: 4,525, 4500
• Resistance: 4550, 4,558, 4,574, 4,600
• 1 Day Implied Range: 0.77%

In QQQ resistance remains at the 390

Call Wall,

with support at 387, 385 then 380.

FOMC Mins are today at 2pm ET. NVDA reported earnings last night, and the stock is up 1% to 505.

The most notable change today is the SPY

Call Wall

contracting to 455, which implies heavier resistance above, particularly into the SPX 4,560 area. The SPX

Call Wall

remains at 4,600.

Unchanged is the extreme call/put sentiment, detailed yesterday.

With tomorrow being Thanksgiving, followed by a 1/2 day, traders are unsurprisingly pricing in anemic movement from equities. Shown belowis SPX term structure, with the shaded cone being the upper and lower bound of term structure over the last +30 days. As you can see we are now well below this cone, with 11/28 exp IV marked at just 7.8%. 7.8% IV implies just 49bps of daily SPX movement!

Should the SPX move higher, we’d only anticipate that the volatility would further contract. Shown below is a gamma curve, wherein peak positive gamma shows into 4,600. We view this like the SPX in quicksand – the higher you try to move the more you get stuck. Further, there isn’t a whole lot to change this dynamic unless positions expire, and for the SPX a large OPEX isn’t due until 12/15. This is why we have favored expressing longs in other products, like Mag 7 and/or IWM.

The red flag here for equities (and again what we outlined yesterday, and above), is that SPX options are priced for bullish perfection. If you are pricing in 49bps of movement in the SPX, the odds of you being wrong on that day (i.e. betting on movement thats too small) is very high. When short vol traders are selling 8% IV and we get a 1% SPX move, those traders are forced to run for cover, and this causes an expansion in volatility. Therefore, while the OPEX “window of weakness” closed, we continue to favor a downside test and reset of IV’s before we see another material leg higher (i.e. >4,600). Regardless of direction, we think being short IV here is not worth the risk/reward.

Ultimately, our “risk off” level is a breach of 4,500, with major resistance above at 4,600.

©2023 TenTen Capital LLC DBA SpotGamma