Futures are off marginally to 4077, after a quiet overnight session. The 4100 Call Wall is now near term resistance, with 4124 over that. Support today shows at 4055 (SPY405) – 4050 with 4000 being major, longer term support. We now look for volatility to begin contracting sharply, implying average SPX moves <=1%.
However, bulls are also not quite in the clear yet, as the options market still shows some anxiety around the PCE/ISM today and Non Farms tomorrow. This can be seen in the SPX term structure below, wherein the shortest dated IV is above longer dated. The implication here is that traders are worried about a “hot” print in this data, which may quickly unwind yesterdays gains.
Also note too that kink due to FOMC on 12/14.
Price action yesterday was dominated by very short dated options volumes, with roughly 50% of SPX call volume, and 40% of SPY call volume tied to 0DTE. This combined with the bullish IVcrush / sigh of relief after Powell was read as “not hawkish”. The SPY volume heatmap shown below lays out where call traders were concentrated, and its key to note our HIROindicator showed call sellers coming out as the SPY moved into the 405 area.
Yesterdays ~3% thrust higher has now unlocked positive gamma, which again implies that equity volatility should decline. Barring an errant PCE/ISM/NonFarms print today/tomorrow, and as noted above, we anticipate a grind higher in equities over the next 2 weeks.
Why a grind?
Recall that in yesterdays AM note we forecasted a steep skew to the possible price distribution out of Powell’s speech. This assigned the chance of an ~10% downside move into 12/16, but only ~6% up upside (4200 target into 12/16).
Yesterday gobbled up 3% of that upside, but traders are still waiting on some data points for the “all clear”. The issue is that the official “all clear” cannot come until 12/14 FOMC.
Therefore the situation reads that, Assuming the data out today/tomorrow is benign, very short dated “pre-FOMC” IV can be sold which provides an equity tailwind. But, recall that FOMC induced IV “kink” noted in the SPX term structure – as we get closer to FOMC the IVpremium is less attractive. This likely reduces vanna as a source of bullish equity fuel into next week.
Further, we have seen traders elect to sell upside calls on sharp rallies, and this has produced grinds into recent expirations like August & November.
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4078 | 4030 | 407 | 12030 | 293 |
| SG Implied 1-Day Move:: | 0.99%, | (±pts): 40.0 | VIX 1 Day Impl. Move:1.3% | ||
| SG Implied 5-Day Move: | 2.86% | 4026 (Monday Ref Price) | Range: 3912.0 | 4142.0 | ||
| SpotGamma Gamma Index™: | 1.21 | -0.14 | 0.07 | 0.04 | 0.03 |
| Volatility Trigger™: | 3990 | 3950 | 402 | 11540 | 286 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 400 | 12000 | 290 |
| Gamma Notional(MM): | 410.0 | 283.0 | 226.0 | 6.0 | 152.0 |
| Put Wall: | 3800 | 3600 | 380 | 11000 | 280 |
| Call Wall : | 4100 | 4100 | 415 | 11650 | 290 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4002 | 3985 | 404.0 | 0 | 298 |
| CP Gam Tilt: | 1.38 | 1.15 | 1.08 | 1.52 | 1.1 |
| Delta Neutral Px: | 3954 | ||||
| Net Delta(MM): | $1,873,804 | $1,756,757 | $192,494 | $59,239 | $99,408 |
| 25D Risk Reversal | -0.04 | -0.05 | -0.04 | -0.04 | -0.04 |
| Call Volume | 700,452 | 404,367 | 2,606,663 | 8,757 | 1,057,465 |
| Put Volume | 1,185,471 | 876,430 | 3,756,607 | 8,657 | 1,291,072 |
| Call Open Interest | 6,571,986 | 6,440,125 | 7,945,996 | 70,388 | 5,188,466 |
| Put Open Interest | 11,676,883 | 11,812,308 | 13,584,195 | 64,301 | 7,004,935 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4100, 4050, 4000, 3950] |
| SPY: [420, 410, 405, 400] |
| QQQ: [300, 290, 285, 280] |
| NDX:[12500, 12000, 11650, 11500] |
| SPX Combo (strike, %ile): [(4250.0, 91.15), (4226.0, 74.21), (4197.0, 96.37), (4173.0, 91.34), (4156.0, 78.4), (4148.0, 96.8), (4144.0, 78.74), (4124.0, 92.45), (4103.0, 87.95), (4099.0, 98.77), (4087.0, 77.21), (4083.0, 79.55), (4079.0, 78.74), (4075.0, 93.81), (4071.0, 75.18), (4050.0, 94.0), (3899.0, 81.94)] |
| SPY Combo: [409.72, 414.61, 419.5, 404.83, 407.27] |
| NDX Combo: [11645.0, 11898.0, 11477.0, 12307.0, 12102.0] |
