Macro Theme:

Short Term SPX Resistance: 4,568 (SPY 456 Call Wall)

Short Term SPX Support: 4,550

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 +5 to 4,572. Key SG levels for the SPX are:

• Support: 4,550, 4,520 & 4,500
• Resistance: 4,568, 4,575, 4,600
• 1 Day Implied Range: 0.77%

There is a very large concentration of SPY

call gamma

(orange) at 454 – 456 (current SPY

Call Wall

), which appears to be the source of short term upside resistance. As shown below, 460 SPY is also a large strike to the upside, with little in the way of positioning >460. Similarly, the SPX

Call Wall

remains at 4,600, which we still see as a major market high due to lack of

call gamma

above. Further, most of this positioning is in place until Dec 15th OPEX. We read this as having two effects:

1. It should be a sticky/low volatility zone
2. Upside is capped until/unless

   Call Walls

   roll higher.

Both of these equate to the S&P500 “stalling out”, and the question is: which way will the Index next break (up or down)?

In regards to #2, our concerns with lack of activity >4,600 is nothing new, and why we have favored expressing longs with other products. Generally we’d anticipate this type of heavy gamma buildup into an expiration, and then the expiration would clear large gamma positions, which in turn clears the way for renewed Index movement. However OPEX is nearly 3 weeks away, and we are seeing little build at strikes more than 50 bps out of the money (i.e. 4,600 calls or 4,500 puts).

Some of this lack of build could be a function of IV’s, which ties into #1, above. As we discussed on Tuesday and Wednesday, IV is anemic, with traders pricing in pitiful levels of volatility. This means that selling those OTM strikes has little value – but there doesn’t appear to be anyone pushing for longs, either. Again, things are stalling.

This is a long term chart of SPX realized volatility, with the 5 day realized sitting at 4.7%, which is a result of this stalled movement. We also see VIX at 13, with next weeks SPX IV’s near 7%. These levels of IV are pricing in 50bps of SPX movement – something which is clearly not sustainable.

We’d note here that 1-month realized volatility is still 14%, but those massive moves higher in SPX from the end-of-October should start rolling out of this calculation, which should should bring 1-month realized vol down significantly (i.e. more reflective of the current reality).

In summary, we view the current levels of realized vol & IV’s as a function of the large gamma positioning, and that positioning likely needs to change in order to invoke volatility. We have concerns that positions are not changing/rolling to upside strikes, and the major gamma-clearing OPEX is not until 12/15. This means sticky upside may remain, but the underbelly of the market may be a bit more soft. Therefore if there is a bit of a market move lower here, those that are short IV at current levels may need to cover. This would naturally push the SPX lower, while also resetting IV higher, to a more realistic mean.

We view this as essentially the market being overbought, and needs consolidation. We’d read any move back to 4,500 as consolidation, and a break of 4,500 as a longer term “risk off”.