Futures have broken lower to 3917. The SPX & SPY Put Walls have both shifted lower to 370/3700 which confirms this market decline (i.e. move is not oversold). Beneath there is a large level at 3648, however we would consider the market temporarily oversold at that level (it is below SPY/SPX Put Walls). Resistance above is at 3749 and 3760 (SPY 375).
We’ve been of the opinion that a large directional move would form out of Wednesday FOMC, and be reinforced by options hedging mechanics (see here). Therefore we are compelled to look for an extension of this move down into 9/30 OPEX. Regardless of that directional view/outcome, volatility likely to remain very elevated for the next several sessions.
We spent much of yesterdays session on the SPY 375 Put Wall (-3% from Wed/FOMC AM highs), and pre-market futures are down ~1.5% from yesterdays close. As noted above, the Put Walls shifted materially lower to 370/3700 which was the result of both the rolling of ITM puts to OTM puts, and lower futures prices.
This exchange of ITM puts initially creates some positive delta relief (puts are sold to dealers, who can buy back futures), but because new puts are purchased lower but foists renewed hedging obligations for dealers are lower prices (i.e. renewed futures shorting if market continues lower). Compare this to puts simply being closed and not rolled lower (shown when the Put Wall shifts to a higher strike) – that same hedging responsibility does not exist. This is why we see the Put Wall shifting higher as having a strong correlation to higher market prices.
Back to the current market position, we’ve highlighted for some time that 3580 strike which holds the Sep Quarterly JPM collar long put. There are 45,000 of these puts, which were at an 5-8 delta earlier this week, and are now closer to a 15 delta. You can see below how the price of 3580 put is up sharply today, based on pre-market prices.
Recall that gamma is highest for ATM options, and so as the market slides it exponentially adds to that puts value. This tells us that the delta of that JPM put is going to start rapidly increasing, as is the hedging obligation. An ATM put has a delta of 50 (vs current level of 15), and so the hedging requirement from that single put position swells from its current size of ~$2bn to $8bn as (or, if) the SPX approaches 3600.
This put position is part of the reason we see the cycle of options hedging activity reinforcing the downside trend into Sep Quarterly OPEX (9/30). The increased deltas of this position adds downside fuel.
Interestingly the entire gamma complex appears to “turn up” if the market breaks below that 360SPY/3600SPX which implies reduced dealer hedging pressure below those levels. In other words the downside put fuel reduces down below 360/3600. This is an interesting intersection of time and price – we have strong fuel to drive markets down to 3600 area into 9/30, then that OPEX may then alleviate pressure as put positions expire.
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 3756 | 3776 | 374 | 11501 | 280 |
| SG Implied 1-Day Move:: | 1.18%, | (±pts): 44.0 | VIX 1 Day Impl. Move:1.72% | ||
| SG Implied 5-Day Move: | 2.9% | 3872 (Monday Ref Price) | Range: 3760.0 | 3985.0 | ||
| SpotGamma Gamma Index™: | -1.84 | -1.68 | -0.49 | 0.00 | -0.16 |
| Volatility Trigger™: | 4000 | 4000 | 390 | 11675 | 310 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 370 | 11750 | 280 |
| Gamma Notional(MM): | -1000.0 | -969.0 | -2406.0 | -0.0 | -1090.0 |
| Put Wall: | 3700 | 3800 | 370 | 11000 | 280 |
| Call Wall : | 4300 | 4005 | 420 | 11750 | 315 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 3953 | 4033 | 393.0 | 11488.0 | 324 |
| CP Gam Tilt: | 0.47 | 0.46 | 0.39 | 0.97 | 0.43 |
| Delta Neutral Px: | 4017 | ||||
| Net Delta(MM): | $1,473,228 | $1,480,341 | $190,643 | $45,342 | $113,532 |
| 25D Risk Reversal | -0.04 | -0.05 | -0.04 | -0.06 | -0.05 |
| Call Volume | 681,499 | 515,240 | 3,264,671 | 7,624 | 1,300,178 |
| Put Volume | 1,185,666 | 784,121 | 4,921,761 | 15,160 | 1,519,708 |
| Call Open Interest | 5,490,695 | 5,358,820 | 7,461,555 | 53,761 | 4,541,356 |
| Put Open Interest | 9,897,108 | 9,742,907 | 11,521,484 | 71,426 | 7,091,909 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4000, 3900, 3800, 3750] |
| SPY: [390, 380, 375, 370] |
| QQQ: [300, 290, 285, 280] |
| NDX:[13000, 12500, 12000, 11750] |
| SPX Combo (strike, %ile): [(3817.0, 72.64), (3798.0, 97.39), (3776.0, 87.05), (3764.0, 87.79), (3749.0, 97.17), (3734.0, 72.71), (3723.0, 86.75), (3716.0, 89.33), (3701.0, 97.42), (3674.0, 84.77), (3667.0, 77.38), (3648.0, 94.37)] |
| SPY Combo: [368.61, 378.34, 373.47, 363.37, 370.1] |
| NDX Combo: [11502.0, 11295.0, 11709.0, 11755.0, 11421.0] |
