Futures are lower to 3945, down from overnight highs of 3990. SG levels remain largely unchanged, with resistance above at 3960, then 4000. Support below is at 3904.
For today we do favor markets staging a rally today back into 4000, and with our volatility estimate of 1.03% we do not see a move down through 3900 for today. That possibility is markedly higher for tomorrow & into next week.
Yesterday there was again very large volumes at the 4000 strike, with 150k calls trading & 75k puts. This call activity, which is likely call selling, adds to resistance at that level. Conversely there was clearly a lot of put activity below, which translated to an uptick in open interest at 3900 & 3950. We think these are likely short term put sellers.
On this point, while the SPX holds a slightly positive gamma stance we see that both SPY and QQQ are in negative gamma which implies put positions are gaining traction. This is another signal that volatility may begin picking up. Our view has been that volatility could be triggered with Fridays OPEX, and we have been therefore recommending adding some puts (here & here). The concern here is that we do not see much support of any kind from 3900 down to 3600 (chart here, description here).
We appreciate that many traders may not want to pay the carry cost (i.e. theta) of puts over the Thanksgiving holiday (and that can be offset/minimized with various structures), but we see the potential for market weakness nonetheless.
In several of our recent notes we compared this current timeframe to that of August ’22 (chart here). August featured a major rally up into OPEX week, then a drop after OPEX.
Below we have plotted SPX price vs OPEX days (red X’s) and as you can see these OPEX dates are often key market turning points. The August selloff was certainly exacerbated by Jackson Hole, but the key insight here is that the onset of negative gamma adds to volatility.
Said another way: markets are more sensitive to headlines and other events when there are larger put positions relative to calls. We think it’s likely that any weakness next week reads more like consolidation and therefore remains fairly contained. We have larger concerns for more violent downside into the end of month & early December due to the large DEC OPEX.
While we clearly are assigning edge to downside after OPEX, we have to respect both sides. Those with a bullish lens out of OPEX should watch the 4100 Call Wall area as resistance into month end. This lines up closely with the widely watched SPX 200 day MA near 4080.
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 3959 | 3965 | 395 | 11699 | 285 |
| SG Implied 1-Day Move:: | 1.03%, | (±pts): 41.0 | VIX 1 Day Impl. Move:1.52% | ||
| SG Implied 5-Day Move: | 3.15% | 3900 (Monday Ref Price) | Range: 3778.0 | 4023.0 | ||
| SpotGamma Gamma Index™: | 0.46 | 0.84 | -0.10 | 0.02 | -0.02 |
| Volatility Trigger™: | 3920 | 3920 | 399 | 11000 | 285 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 400 | 12000 | 290 |
| Gamma Notional(MM): | 65.0 | 60.0 | -569.0 | 6.0 | -151.0 |
| Put Wall: | 3600 | 3600 | 390 | 11000 | 265 |
| Call Wall : | 4100 | 4100 | 400 | 11050 | 290 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 3947 | 3953 | 397.0 | 10753.0 | 298 |
| CP Gam Tilt: | 1.13 | 1.03 | 0.84 | 1.46 | 0.91 |
| Delta Neutral Px: | 3897 | ||||
| Net Delta(MM): | $1,317,173 | $1,818,371 | $201,113 | $56,228 | $105,060 |
| 25D Risk Reversal | -0.04 | -0.04 | -0.05 | -0.03 | -0.04 |
| Call Volume | 537,941 | 630,601 | 1,497,049 | 8,604 | 723,948 |
| Put Volume | 859,377 | 982,058 | 2,226,062 | 5,717 | 1,130,829 |
| Call Open Interest | 5,597,719 | 7,167,688 | 8,459,995 | 73,261 | 5,577,628 |
| Put Open Interest | 9,641,143 | 11,969,654 | 14,654,001 | 65,139 | 7,526,980 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4100, 4000, 3950, 3900] |
| SPY: [400, 395, 390, 380] |
| QQQ: [300, 290, 285, 280] |
| NDX:[12500, 12000, 11500, 11000] |
| SPX Combo (strike, %ile): [(4150.0, 81.91), (4098.0, 94.94), (4074.0, 82.81), (4047.0, 93.92), (4039.0, 75.37), (4023.0, 80.16), (4003.0, 80.05), (3999.0, 91.99), (3948.0, 78.86), (3904.0, 79.15), (3833.0, 77.14), (3797.0, 83.02)] |
| SPY Combo: [409.29, 404.15, 399.4, 379.24, 406.92] |
| NDX Combo: [11477.0, 11886.0, 12085.0] |
