Futures are off of 3770 lows to 3815. The 3800 Put Wall remains a key support area, however we note the SPY Put Wall holds at 375 (~3770 SPX equivalent). Above 3800 we do not register and major options levels until 3900.
Yields are understandably on the move today as macro investors read the tea leaves. This has seemingly left options traders a bit stuck, too. To this point we look at the VIX below, which is unchanged from 7AM ET yesterday. This “unchanged” is confirmed by various SPX skew readings, too.
While there were some new put positions added at lower strikes, the fact is key SG levels (Put Walls, Vol Trigger) remain at the same strikes as yesterday. This is all a bit strange, really, as one would expect some fairly strong positions/vol shifts after FOMC.
Essentially, the options market was, and still is, ready for high volatility and Powell did not appear to drive demand for “extra high volatility”. In our data there is nothing in options positioning which allows us to assign a directional edge to markets. However, based on current options positioning (i.e. negative gamma, high IV) we appear poised to experience above-YTD average volatility for the next several sessions (i.e. large swings >1%).
To this point on direction, if markets decide to bounce here, that bounce could easily jump markets back up into 4000 as IV retracts and dealers chase negative gamma hedges. A shift lower also invokes that same negative gamma chase – just to the downside with 3600 the key level. We suspect large macro flows are going to roll equities in one direction and anticipate options flows to reinforce that trend.
Further, there is no real large options expiration in at least the next 10 days (more likely the next month) to snap any kind of hedging feedback loop (i.e. dealers being able to reduce hedges due to options expiration).
If markets move >=4000 then that negative gamma dies off and volatility should reduce, but markets should remain very fluid (i.e. volatility high) while under that level.
One final note on the longer term picture. We continue to key off of the MOVE Index as the major macro indicator, and that metric remains at all time highs (explained here). Additionally that chasm between bond vol and equity vol (i.e. VIX, VVIX, SKEW/SDEX) remains extremely wide. Nothing says this spread has to collapse, however we remain of the opinion that equities cannot hold a material, sustainable rally (5-10% equity rallies have been disappearing at lightning speed) until that MOVE index shifts back down <=100.
As long as the MOVE remains this elevated, tail risk remains elevated, and overall volatility likely remains high.
|SpotGamma Proprietary SPX Levels||Latest Data||SPX Previous||SPY||NDX||QQQ|
|SG Implied 1-Day Move::||1.22%,||(±pts): 46.0||VIX 1 Day Impl. Move:1.77%|
|SG Implied 5-Day Move:||2.9%||3872 (Monday Ref Price)||Range: 3760.0 | 3985.0|
|SpotGamma Gamma Index™:||-1.70||-1.26||-0.45||0.01||-0.15|
|SpotGamma Absolute Gamma Strike:||4000||4000||375||11750||290|
|Call Wall :||4005||4005||430||11750||315|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||4017||4034||406.0||11624.0||328|
|CP Gam Tilt:||0.5||0.5||0.38||1.01||0.43|
|Delta Neutral Px:||4052|
|25D Risk Reversal||-0.05||-0.05||-0.04||-0.07||-0.06|
|Call Open Interest||5,358,820||5,322,394||6,892,767||52,111||4,254,871|
|Put Open Interest||9,742,907||9,307,137||11,549,978||69,297||6,949,334|
|Key Support & Resistance Strikes:|
|SPX: [4000, 3950, 3900, 3800]|
|SPY: [390, 380, 375, 370]|
|QQQ: [300, 290, 285, 280]|
|NDX:[13000, 12500, 12000, 11750]|
|SPX Combo (strike, %ile): [(3900.0, 87.75), (3850.0, 81.55), (3816.0, 80.88), (3801.0, 97.72), (3775.0, 87.54), (3767.0, 86.57), (3748.0, 96.25), (3725.0, 84.93), (3714.0, 83.87), (3699.0, 96.51)]|
|SPY Combo: [378.52, 368.33, 373.24, 388.33, 375.88]|
|NDX Combo: [11486.0, 11696.0, 11905.0, 11754.0]|