Futures are off slightly to 4035 on this holiday shortened trading day. The Call Walls for the SPX/SPY are now in sync at 4050-4060(SPY405), which is the major resistance area for today. Support shows at 4024 and 4000.
Our theme over this holiday period has been for markets to hold a bullish tailwind as traders catch their breath for what should be a volatile (large movement up & down) December. As outlined in detail on Wednesday AM’s note there remains little in the way of options positioning before Dec 16th expiration, and the key for a rally extension here lies with call positions building overhead and the desire to press IV to new lows.
To this point, the majority of our models are extremely neutral. This is most easily measured by markets hanging just above the largest gamma strike of 4000, and gamma flip point of ~3975(Vol Trigger/Zero Gamma area). Bulls want to see Call Walls roll steadily higher, followed by shifts up in the Vol Trigger and Put Walls. This indicates that the entire options complex is in sync with higher market prices.
Failure of Vol Trigger and Put Wall to roll higher suggests that rallies are unstable because traders are not adding puts (hedging) below.
The other topic we’ve been focused on is that of volatility, and its decay. It becomes more relevant for bulls at this point because we may have to press IV to fresh lows in order to maintain a vanna-tailwind. While there are a near infinite measures for implied volatility, almost all of them suggest limited demand for downside protection.
Plotted below is VIX9D (VIX calc on SPX options expiring <=9D), which is at YTD lows just as the VIX pushes 20. Nothing says that we cannot stage a large Santa-Rally into the end of December, it would just mean breaking from the behavior or markets YTD. This behavior has typically been to sell vol and/or bid markets up into key data/events, and when those catalysts are negative there are violent drawdowns.
We do anecdotally believe that no investor (particularly one managing client assets) wants to miss a sharp year end rally, which could create “chase-y” behavior to the upside. If this starts, we would see it in our data as outlined above (i.e. higher Call Walls), but we likely aren’t in the clear until after 12/2.
This is because starting with 11/30 we will be provided with a slew of data that likely determines the year end trend to Dec OPEX. This includes Powell + GDP on the 30th, followed by Core PCE, ISM and unemployment data. Unfavorable reactions to the data out of next week could spark that nasty downside action into 12/16 OPEX we’ve been highlighting for some time.
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4027 | 4027 | 402 | 11838 | 288 |
| SG Implied 1-Day Move:: | 1.06%, | (±pts): 43.0 | VIX 1 Day Impl. Move:1.29% | ||
| SG Implied 5-Day Move: | 2.95% | 3967 (Monday Ref Price) | Range: 3850.0 | 4084.0 | ||
| SpotGamma Gamma Index™: | 0.81 | 0.07 | 0.08 | 0.04 | 0.01 |
| Volatility Trigger™: | 3945 | 3945 | 399 | 11475 | 287 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 400 | 12000 | 290 |
| Gamma Notional(MM): | 292.0 | 413.0 | 307.0 | 6.0 | 41.0 |
| Put Wall: | 3600 | 3800 | 380 | 11000 | 265 |
| Call Wall : | 4050 | 4000 | 405 | 11650 | 290 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 3982 | 3958 | 398.0 | 10796.0 | 296 |
| CP Gam Tilt: | 1.23 | 1.25 | 1.09 | 1.48 | 1.02 |
| Delta Neutral Px: | 3905 | ||||
| Net Delta(MM): | $1,756,120 | $1,773,192 | $184,472 | $52,561 | $97,041 |
| 25D Risk Reversal | -0.05 | -0.05 | -0.05 | -0.05 | -0.05 |
| Call Volume | 450,729 | 450,729 | 2,375,532 | 9,159 | 834,212 |
| Put Volume | 941,657 | 941,657 | 2,968,776 | 6,222 | 967,583 |
| Call Open Interest | 6,549,297 | 6,481,910 | 7,836,445 | 67,214 | 5,131,080 |
| Put Open Interest | 11,421,209 | 11,477,308 | 13,228,948 | 60,495 | 6,922,290 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4050, 4000, 3950, 3900] |
| SPY: [405, 403, 402, 400] |
| QQQ: [300, 290, 285, 280] |
| NDX:[12500, 12000, 11650, 11500] |
| SPX Combo (strike, %ile): [(4201.0, 92.05), (4149.0, 89.53), (4125.0, 85.17), (4104.0, 75.29), (4100.0, 96.65), (4076.0, 92.73), (4072.0, 76.93), (4064.0, 79.16), (4060.0, 80.48), (4056.0, 86.46), (4052.0, 96.94), (4044.0, 81.08), (4040.0, 82.59), (4036.0, 87.75), (4024.0, 87.02), (4004.0, 77.0), (4000.0, 89.93), (3835.0, 77.71)] |
| SPY Combo: [404.83, 409.66, 407.25, 419.72, 399.6] |
| NDX Combo: [11649.0, 11886.0, 11969.0, 11472.0, 12300.0] |
