Futures are again quiet overnight, near 3940. Key SG levels are unchanged, with our one day implied move at 0.95%. Support for today shows at 3910 (SPY390) – 3900, with resistance at 3950-3960(SPY395). Resistance above there is at 4000.
The last few days been very interesting. Coming into this week, our view was that markets would grind ahead into next weeks key data points, starting with 12/13 CPI. This view was driven by the fact that short dated volatility sellers should come into a positive gamma environment, taking advantage of the blackout in data-driven volatility triggers.
Obviously our work here is driven off of options positioning. It overlaps with the macro when the options market is pricing in high volatility around various events. After the passing of the deluge of data last week, it looked on Friday into Monday morning like options traders were positioned this week for the “grind”. We discussed this in our note last night, wherein we saw the 0DTE straddles being priced at ~$30 on Monday’s open, and only $22 yesterday’s open (see y’days note). Even this morning 0DTE straddles are priced just over $30.
It seems like some flows were unlocked on Monday morning, and the options market was not anticipating or signaling the risks or size. You can see this in the chart below wherein we plotted ES futures against the 2 year yield & crude oil futures. You can see there are synchronized moves in these assets around data from last week, but then there is this move that occurs early on Monday morning – before the 10AM ISM print.
The core idea behind our metrics is in identifying wherein options hedging flows dominate price action. Second to that is identifying the “sentiment” driven by options positioning – for example traders buying lots of puts to hedge risks. Occasionally, things happen that no one sees, like the Gilt scare in September. In this case, the driver(s) of these flows are non-obvious, but appear large and smell like coordinated stock liquidations. We’d note here that while we have no first hand knowledge, there are whispers around of tax loss selling, and funds unwinding energy positions.
To us, something along these makes sense. One of our first institutional roles was on a program trading desk. This role was to implement large “programs” which are trading giant baskets of stocks. For example – some pension fund will come in and need to sell $100mm of the S&P500 basket. You don’t sell futures here, you actually spread out the $100mm over all stocks in the S&P500. With big orders you cannot simply hit “market sell” because you move the market too sharply. So, you the order into an algorithm like a VWAP. The algo starts selling at 9:30 AM, and stops at the close. And, for really large orders, you may spread it out over a few days.
Below is a chart of ES futures over the last two days, and note how stable the futures are overnight vs how much selling is done during market hours (blue boxes). This smells an awful lot like cash stock sales, and also sinks with the idea that the options market wasn’t privy to the catalyst.
For equity bulls, the upside here is that we believe that the options flows have been fairly positive over the last few days. HIRO is not reflecting large put buyers – but some call buying. We did see some longer dated put positions added (and the VIX up a bit), the options flows generally don’t speak of major fear/protection. In other words – we don’t see the options market as currently inducing volatility. We think that if there was an options induced negative feedback look we’d get more “bounce” or mean reversion after larger drawdowns. Instead, futures just drop and stick as shown above.
Below 3900 Put Wall support, we think that volatility changes materially. This is because below 390SPY/3900SPX the positioning is put-dominated, as shown below in red. The concern here is that the weakness plays into the factors we outlined in 2 weeks ago: large December put positions gain in size, and, due to FOMC, there isn’t a catalyst to break higher implied volatility.
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 3942 | 3928 | 393 | 11549 | 281 |
| SG Implied 1-Day Move:: | 0.95%, | (±pts): 37.0 | VIX 1 Day Impl. Move:1.39% | ||
| SG Implied 5-Day Move: | 2.82% | 4071 (Monday Ref Price) | Range: 3957.0 | 4186.0 | ||
| SpotGamma Gamma Index™: | -0.72 | -0.07 | -0.25 | 0.03 | -0.07 |
| Volatility Trigger™: | 4000 | 4005 | 397 | 11540 | 285 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 400 | 11650 | 290 |
| Gamma Notional(MM): | -418.0 | -648.0 | -1161.0 | 6.0 | -483.0 |
| Put Wall: | 3900 | 3900 | 380 | 11000 | 280 |
| Call Wall : | 4100 | 4100 | 410 | 11650 | 290 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 3987 | 4003 | 399.0 | 10855.0 | 298 |
| CP Gam Tilt: | 0.85 | 0.75 | 0.73 | 1.47 | 0.74 |
| Delta Neutral Px: | 3939 | ||||
| Net Delta(MM): | $1,853,925 | $1,783,693 | $211,449 | $56,704 | $99,114 |
| 25D Risk Reversal | -0.05 | 0.03 | -0.05 | -0.04 | -0.04 |
| Call Volume | 677,739 | 509,350 | 2,871,222 | 12,378 | 980,323 |
| Put Volume | 1,055,835 | 920,240 | 3,650,907 | 5,969 | 1,065,751 |
| Call Open Interest | 6,799,953 | 6,673,852 | 8,917,313 | 72,142 | 5,350,886 |
| Put Open Interest | 12,073,100 | 11,831,190 | 14,316,673 | 68,727 | 7,124,620 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4000, 3950, 3900, 3800] |
| SPY: [400, 395, 390, 380] |
| QQQ: [300, 290, 285, 280] |
| NDX:[12000, 11750, 11650, 11500] |
| SPX Combo (strike, %ile): [(4100.0, 93.1), (4076.0, 81.24), (4053.0, 89.46), (3950.0, 84.39), (3930.0, 80.17), (3926.0, 74.28), (3923.0, 79.67), (3911.0, 78.01), (3903.0, 97.97), (3895.0, 74.9), (3875.0, 88.57), (3859.0, 74.66), (3855.0, 83.48), (3852.0, 90.64), (3836.0, 81.74), (3828.0, 79.34), (3804.0, 82.22), (3800.0, 94.47), (3749.0, 87.28)] |
| SPY Combo: [389.89, 379.65, 409.58, 384.77, 404.86] |
| NDX Combo: [11654.0, 11480.0, 11076.0, 11896.0, 11272.0] |
