Macro Theme:

 

 

Founder’s Note:

Key SG levels for the SPX are:

• Support: 5,600, 5,570, 5,550, 5,500
• Resistance: 5,600, 5620, 5,650, 5,665

For QQQ:

• Support: 470
• Resistance: 480, 485

IWM:

• Support: 212, 210, 200
• Resistance: 215, 220

VIX expiration is at 9:30AM ET, followed by FOMC at 2PM ET.

The VIX is at 16 this AM, which is in the center of the large OI expiring this morning. As noted yesterday, we have seen the VIX expiration mark a shift in equities prices, and so we are on watch for a possible change in SPX price trend this AM.

Overall we continue to see large positive gamma (+$8bn per 1% move) into the 5,650 area which should be meaningful resistance for the rest of this week. To the downside, positive gamma still reigns into 5,500, which should supply some support at key downside strike areas of 5,650, 5550 & 5,500.

Its on a break <5,500 we see a shift to negative SPX gamma, which shifts us to “risk off” with fast downside price action anticipated.

With the VIX at 16 this morning, we are finding SPX vols catching a bit of a bid. You can see this via the Fixed Strike Matrix below, which compares Monday’s IV vs this AM. The green matrix reflects mildly higher vols as traders await FOMC mins & Powell Saturday. This is not exactly a major bid for long volatility, but suggesting that we’ve reached a short term lower bound. Because the SPX has been rallying at nearly 1% a day, realized vol remains elevated, which can keeps implied vols elevated.

Where things are a little bit interesting is with skew, which remains a bit bid despite a large decline more generally across the vol surface. In the SPX we see this with elevated skew measures in the SKEW or SDEX index, but also in the VVIX, shown below. The elevated VVIX suggests that out-of-the-money VIX calls are catching a bid relative to at-the-money VIX options. This suggests that if vol was to catch a bid, the shift higher in vol could be quick.