Futures are holding the key 4000 level after a quiet overnight session. This 4000 level remains support for today, with 3975 & 3960 (SPY395) support below. Resistance above shows at 4051. A push below 4000 places markets back into a mild negative gamma stance, which suggests higher volatility.
Clearly there were some big macro flows yesterday, as there were breakdowns in several sectors. We note particular weakness in energy (XLE, -3%), & regional banks (-5%). While this served to drag down the S&P, critical support at 4000 held – a level which lined up with our expected one day implied move.
The volumes at 4000 yesterday were very large, particularly on the put side (~140k puts traded, 73k calls). These volumes were dominated by 0DTE flows (~45% of total). Despite all of this 4000 strike volume, open interest at that level only increased by ~5k.
Despite what felt like a tough day, the S&P term structure only had a mild shift. As you can see the structure is still in contango – meaning very short dated IV is below that of longer dated IV. There is that obvious kink in the curve for CPI/FOMC we’ve been highlighting, but those IVlevels remain unchanged since yesterday.
Despite a fairly benign shift in IV, we are seeing some size added to downside puts. Shown below is the increase in open interest for SPX, and as you can see there were fairly large changes to several put strikes below, notably 3900 – which is now our Put Wall.
Below we’ve mapped out the volume in SPY options (calls top, puts bottom) and you can also note some larger, longer dated volumes in OTM puts vs more ATM volume in calls.
The takeaway from all of this is that based on longer term, OTM put flows, traders seem more concerned about future events. Further there appear to be some rotational stock flows under the hood which added market pressure. This certainly didn’t translate into panic, as implied vol only shifted mildly and our key 4000 level held.
We have been looking for a grind in market prices this week with the S&P holding 4000. We still give edge to that scenario, but must respect the downside as we shift into negative gamma territory.
To this point, we think it would likely take another day of weakness into 3950 before negative gamma options flows would trigger a larger volatility spike. The concern in this scenario is that traders may shy away from selling IV before next weeks FOMC. Therefore market weakness here may play into a reflexive, downside feedback loop*, with nothing to snap it until 12/13-12/14.
*These feedback loops are wherein negative gamma positions lead dealers to sell into weakness, and buy into strength. As dealers sell into weakness, it pushes market prices lower, and implied volatility higher. This elevates put values, which can force dealers to sell incrementally. These feedback loops may remain in place until a large event or OPEX forces a change in options positioning.
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 3999 | 3992 | 399 | 11786 | 287 |
| SG Implied 1-Day Move:: | 1.05%, | (±pts): 42.0 | VIX 1 Day Impl. Move:1.3% | ||
| SG Implied 5-Day Move: | 2.82% | 4071 (Monday Ref Price) | Range: 3957.0 | 4186.0 | ||
| SpotGamma Gamma Index™: | -0.07 | 0.84 | -0.12 | 0.04 | -0.04 |
| Volatility Trigger™: | 4005 | 3995 | 399 | 11540 | 287 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 400 | 11650 | 290 |
| Gamma Notional(MM): | -146.0 | -386.0 | -548.0 | 7.0 | -246.0 |
| Put Wall: | 3900 | 3800 | 380 | 11000 | 280 |
| Call Wall : | 4100 | 4100 | 410 | 11650 | 290 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4014 | 4037 | 402.0 | 10912.0 | 299 |
| CP Gam Tilt: | 0.98 | 0.83 | 0.86 | 1.55 | 0.86 |
| Delta Neutral Px: | 3966 | ||||
| Net Delta(MM): | $1,815,576 | $1,568,418 | $203,566 | $58,906 | $94,386 |
| 25D Risk Reversal | 0.03 | -0.05 | -0.05 | -0.04 | -0.05 |
| Call Volume | 509,350 | 511,067 | 2,498,862 | 8,202 | 740,476 |
| Put Volume | 920,240 | 812,982 | 3,073,310 | 6,148 | 765,851 |
| Call Open Interest | 6,673,852 | 5,955,742 | 8,564,342 | 71,668 | 5,126,206 |
| Put Open Interest | 11,831,190 | 11,709,169 | 13,977,524 | 68,158 | 7,025,390 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4100, 4000, 3950, 3900] |
| SPY: [410, 405, 400, 395] |
| QQQ: [300, 290, 285, 280] |
| NDX:[12000, 11750, 11650, 11500] |
| SPX Combo (strike, %ile): [(4175.0, 86.03), (4151.0, 94.05), (4127.0, 76.84), (4099.0, 95.58), (4075.0, 83.42), (4051.0, 92.97), (3975.0, 85.47), (3951.0, 94.7), (3899.0, 93.11), (3875.0, 74.6), (3851.0, 90.25), (3835.0, 82.44), (3803.0, 74.94)] |
| SPY Combo: [409.58, 394.79, 414.77, 389.6, 404.78] |
| NDX Combo: [11645.0, 11469.0, 11881.0, 11681.0, 12294.0] |
