Macro Theme:

Short Term SPX Resistance: 4,800

Short Term SPX Support: 4,750

SPX Risk Pivot Level: 4,700

Major SPX Range High/Resistance: 4,800

Major SPX Range Low/Support: 4,500

‣ 4,800 is our current max upside target, due to a Call Wall shift on 12/19. Call Walls in QQQ/IWM are at 415/205.*

‣ A downside break of 4,700 is our interim “risk off” level.*

‣ SPX IV’s for the final week of 2023 are extremely low, and we warn traders of “jump risk” embedded with this (see note).*

‣ January OPEX is setting up to be a major event, with a risk that expiring large long call positions could pull markets lower mid to late January.*

*updated 12/27

Founder’s Note:

ES Futures are flat at 4,832. Key SG levels for the SPX are:

• Support: 4,750, 4,700
• Resistance: 4800, 4,815
• 1 Day Implied Range: 0.78%

For QQQ support is at 409 & 410, with resistance at the 414

Call Wall.

In IWM, support is at 200, 196 & 190, with resistance the 205

Call Wall.

Yesterday the options market was pricing in just a 33bps 1-day move in the S&P, and the S&P returned +14bps. There is similar pricing for today, with the ATM straddle priced at $15.65 or 32bps. This leads us to again, as with the previous two AM notes, warn that IV’s at these levels carry risk, as a very simple position shift from a large entity, or large of 0DTE options trade could force volatility short covering, which in turn could lead to a jump in equity prices. Selling short dated SPX options here, in our view, offers very poor risk/reward due to this jump risk.

As far as strike-gamma goes, SPX 4,800 and SPY 475 & 480 remain the major levels on the board. This should continue to create volatility suppressing hedging flow, which makes sticky upside movement in SPX.

It’s not just the 0DTE’s which are showing flatlined IV’s, longer dated options IV’s are at lows, too. You can see this in the SPX Fixed Strike Matrix, below (tutorial here). This sea of red across expirations (y-axis) and strikes (x-axis) informs us that vols are indeed at statistical lows, which, in this case, may imply that options are becoming interesting long opportunities out of this holiday, end-of-year period. This could work for both bullish or bearish expressions (or hedges), as volatility is likely to increase into January. Consider, for example, that 1-2% upside strikes (i.e. ~4,825) for January OPEX (1/19) are trading for ~9% IV, with 1-2% downside strikes (i.e. 4,700) trading near 11% IV.

Clearly we have another week of decay ahead with the holiday weekend, but the volatility needed for these options to pay off is fairly low.

Overall, everything here suggests that we see little edge for traders here over the next 1-2 days. The low IV’s are arguably to cheap to short here, but are also unlikely to change before January. Equity indexes are pushed up into sticky upside zones