Macro Theme:

Short Term SPX Resistance: 4,815 (SPY 480)

Short Term SPX Support: 4,765 (SPY 475)

SPX Risk Pivot Level: 4,700

Major SPX Range High/Resistance: 4,815 (SPY Call Wall)

Major SPX Range Low/Support: 4,600

‣ 4,800 – 4,815 is our current max upside target into 1/19 OPEX. Call Walls in QQQ/IWM are at 415/200.*

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

‣ 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.*

‣ Implied volatility remains muted despite recent equity market weakness, with a surge in demand for long volatility (i.e put buying) is a potential driver of equity weakness.*

*updated 1/19

Founder’s Note:

ES Futures are up 40bps to 4,830. Key SG levels for the SPX are:

• Support: 4,765, 4,715, 4,700
• Resistance: 4,800, 4,815
• 1 Day Implied Range: 1.13%

For QQQ:

• Support: 410, 408, 400
• Resistance: 415

IWM:

• Support: 190, 185
• Resistance: 196, 200

TLDR: Per our notes this week, we see 4,800-4,815 (SPY 480) as heavy resistance today, and the twin risk-catalysts of a low IV & large Jan OPEX lurk below 4,700 in the SPX.

This morning we see ES futures indicating that the SPX will open up against the large 4,800 – 4,815 (SPY 480) resistance range. Our view has been, and remains, that this level would hold as resistance until today’s OPEX positions roll off, which removes ~1/3 of total S&P500 gamma. The removal of this gamma could reduce the overhead resistance that has recently capped major indexes.

To be more clear, the reduction of gamma should be seen as an opportunity for markets to remove more freely in general (both up or down), leading to a breakout of the range we’ve been holding over the past 2 weeks. You can see this inferred in our 1-day implied move, which is higher to 1.1% (vs ~65bps over recent days).

The 5,000 upside strike is starting to garner attention due to its unusual size. While we have seen some call activity pick up at that strike now that it is only ~4% OTM, we believe the bulk of this positions to be box spreads that were placed over the past year. What suggests this is the large put positions that reside at that 5,000 strike. For example, this morning we see 130k calls and 125k puts expiring at that strike. These spreads are riskless rate plays that do not factor into dealer flows that we seek to analyze.

The above being said, this strike is the obvious upside target if things do start to break out to the upside. We’ve been of the opinion that the market will want to see the 1/31 FOMC “stamp of approval”, but removal of 4,800 area positions and any subsequent rolling higher of

Call Walls

should be seen a bullish signal (see yesterday’s note).

As for the downside, we’ve admittedly been focused on the downside risks of deep ITM Jan OPEX calls, and relatively low IV’s. While IV’s threatened to perk up, they quickly lost their punch as equity dip-buyers step in. This mean reversion is a feature/behavior that you’d expect in a positive gamma market. Just like trying to shove a beachball underwater, it returns to the surface. While that mean reversion makes sense, we were certainly focused on the chance that, if 4,700 broke, mean reversion behavior would give way to a larger directional move down. We see Monday as really the last day for any OPEX effect. If 4,700 is broken next week, we still believe it leads to larger directional selling, but the magnitude would likely be lower.

Finally, we wanted to flag some unusual behavior seen in the NDX

HIRO,

yesterday. We posted a quick video on these 0DTE flows late last night, and a screenshot of NDX

HIRO,

below. As you can see there is this very large call flow (orange) that starts just after 2pm ET. Further, this is purely 0DTE call flow (green), with a very large size ($4bn in delta). The 45° angle of this flow suggests some type of algo at work. What we see under the hood (and as noted in the video) is the rhythmic buying of 0DTE 1-lots. This all appears to be related to the QYLD Nasdaq BuyWrite ETF, which rolls the Thursday before monthly OPEX. This flow combined with very large S&P flows at the same time, and syncs with a 80-100bps afternoon rally in equity markets.

Accordingly this fund should be selling a new tranche of fresh 1-month NDX calls today, worth several billion.