Futures are at overnight lows of 3745 from highs of 3780. We see support in the 3710-3700 area, then 3650. To the upside resistance shows at 3750 & 3800, then 3834. We are looking for very high volatility today as post-FOMC macro adjustments are fueled by the onset of negative gamma, increasing IV, and large 0DTE flow.
The 370/3700 and 365/3650 SPY/SPY level(s) did pick up some put positions, but not enough to shift the Put Wall. Therefore 360/3600 remains our downside target as outlined yesterday. Our edge remains with the idea that higher implied volatility should hold, and the momentum of that negative gamma hedging should keep pressure on markets.
However, we are seeing some odd movement in volatility which is not yet fully syncing with this downside target. We are not giving edge to a sneaky, upside reversal, but we need to flag that risk. There have been a few instances as of late (ex: 10/13, 10/31) wherein futures are holding large overnight declines, and as the cash market opens large 0DTE flow has come in to force a rip higher. The move higher is reinforced by traders selling ultra-short-dated IV.
On this topic of IV, it is the most interesting data this morning. Below is SPX term structure, and there continues to be sharp backwardation due to next weeks elections & CPI. There was also a shift higher in IV for expirations out in time. This suggests that there is/was some demand for longer dated downside protection.
Yet while that back end curve shifted higher, we saw our RiskReversal indicator hold a bullish -0.05 mark, and the VIX had no response to yesterdays +3% intraday decline. In fact, the VIX closed lower on the day, as shown below (bottom pane). Note that both our RiskReversal and VIX are focused on options that are <=30 days to expiration.
Our read here is that options on the shorter end were priced for volatility – and that’s what happened. There wasn’t enough hawkishness to lead traders to “pay up” for puts. Had markets received the Fed as dovish, that backwardation would have most certainly flipped to contango, and fueled the markets higher. Instead, that backwardation IV position is simply being held. Powell seemingly didn’t give traders a reason to buy stock yesterday, but didn’t do enough to bring new levels of fear.
This lack of major change in short dated IV also syncs with few changes in our SG levels. As we stated above, some put positions did fill in from 3700 to 3650, however our Delta Tilt indicator does not suggest we are yet at “max put” positions. This would likely occur at 3600 – which is why we see major structural support at that level.
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 3759 | 3765 | 374 | 10906 | 265 |
| SG Implied 1-Day Move:: | 1.25%, | (±pts): 47.0 | VIX 1 Day Impl. Move:1.63% | ||
| SG Implied 5-Day Move: | 3.15% | 3900 (Monday Ref Price) | Range: 3778.0 | 4023.0 | ||
| SpotGamma Gamma Index™: | -1.04 | -0.05 | -0.35 | 0.01 | -0.13 |
| Volatility Trigger™: | 3825 | 3820 | 383 | 11000 | 280 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 370 | 11050 | 270 |
| Gamma Notional(MM): | -600.0 | -605.0 | -1789.0 | 2.0 | -932.0 |
| Put Wall: | 3600 | 3600 | 360 | 10500 | 265 |
| Call Wall : | 4100 | 3900 | 400 | 11050 | 282 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 3862 | 3898 | 391.0 | 10488.0 | 299 |
| CP Gam Tilt: | 0.72 | 0.7 | 0.53 | 1.21 | 0.47 |
| Delta Neutral Px: | 3900 | ||||
| Net Delta(MM): | $1,687,801 | $1,602,519 | $191,598 | $47,906 | $100,348 |
| 25D Risk Reversal | -0.05 | -0.05 | -0.02 | -0.04 | -0.01 |
| Call Volume | 524,759 | 440,317 | 2,256,524 | 10,021 | 1,010,364 |
| Put Volume | 911,537 | 744,434 | 3,187,300 | 6,428 | 1,388,900 |
| Call Open Interest | 6,551,358 | 6,376,374 | 7,845,517 | 63,743 | 4,725,649 |
| Put Open Interest | 11,268,942 | 11,143,373 | 13,675,086 | 60,066 | 6,837,011 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4000, 3900, 3800, 3700] |
| SPY: [380, 375, 370, 360] |
| QQQ: [275, 270, 265, 260] |
| NDX:[12000, 11500, 11050, 11000] |
| SPX Combo (strike, %ile): [(3898.0, 79.54), (3834.0, 80.68), (3763.0, 81.0), (3748.0, 82.47), (3725.0, 81.48), (3710.0, 85.52), (3699.0, 94.36), (3673.0, 83.54), (3661.0, 74.28), (3650.0, 93.82), (3624.0, 79.33), (3613.0, 82.31), (3601.0, 96.59)] |
| SPY Combo: [359.13, 368.87, 364.0, 370.0, 366.25] |
| NDX Combo: [10874.0, 11048.0, 10677.0, 11081.0, 11288.0] |
