Informe Option Levels

Futures are flat to last nights close near 3835. SG levels remain similar to yesterday, but there appears to be a bit more of a tilt to new, long put positions. Support shows at 3800 then 3780. Resistance is at 3836 and 3851.

The was a lot of bullish momentum yesterday AM, both in SPX price action but also the decline in IV. As we discussed last night that move was snapped by the crypto crash, and exacerbated by some 54% of total SPX volume being in 0DTE. We believe the 0DTE flow turned what may have only been a 50bps move down into a 150bps move, and when those 0DTE puts were closed on the lows it fueled a ~125bps recovery.

Shifting to today, yesterdays move seemed to have shaken the vol sellers up. We saw a small move down in the Vol Trigger (led by puts added/calls closed), an increase in total put open interest (+ closing of calls), and a pop in skew. Further, the VIX is holding 25.5 which is well above yesterdays lows (despite an ES recovery). Interestingly, that VIX discount to 1MRV is gone (focus of yesterdays note).

Accordingly, due to tomorrows AM CPI we suspect that we will not see a whole lot of upside momentum today as short dated IV sellers are likely scared off by yesterdays nasty drawdown and tomorrows data. There is still an extreme backwardation in the SPX complex, as shown below. IV for tomorrows expiration is near 44%, while the rest of the curve is extremely flat at 24%. This suggests traders are looking for something near a 2.5% move for tomorrow, then only 1.5% moves for next week. Everything we look at suggests that traders see little risk of any type of tail move lower.

Looking forward we see little reason to shift from the playbook we outlined several days ago. For the next several sessions we mark 4000 as the major resistance strike to the upside, and 3700 as the big strike to the downside.