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Informe Option Levels

Dic 12, 2022 | Option Levels | 0 Comentarios

Futures (ESH3) are higher to 3975. Today is anticipated to be a relatively calm day, with an SG implied move of 0.87% (max move, open/close). Major resistance above remains at 4000-4010 (SPY410). Support shows at 3960(SPY395) – 3950, with 3900 major support.

The relative calm gives way tomorrow with the 8/13 CPI print. This is then followed by the 8/14 FOMC, and 8/16 OPEX. You can see this reflected in implied volatility, wherein todays expiration IV is 17% (est. 1% move) and then IVsurges to 40% for tomorrow & Wednesday (+2% est moves). This is quite high.

SPX Implied Volatility Term Structure. Source: IB

These moves will then charge (or discharge) prices into the massive Dec OPEX, wherein +$250 billion calls & puts expire across SPX/SPY/QQQ/NDX and +$300bn in single stock deltas (calls/puts each, absolute delta basis).

As you can see below this dwarfs the side of any future expiration. The value of these positions will change immensely out of FOMC, not just on directional price changes (gamma), but also coming off of those extreme IV’s shown above (vanna), and rapid time decay (charm).

SPX/SPY/QQQ/NDX Absolute Delta by Expiration

What does all this mean? Show below is the options implied probability of various closing prices across near term expirations. As you can see, the options market is today favoring a close in the 3900-4000 range we favored last week (black box). However, for all expirations past that there is very little consensus. This is seen in the fact that options traders give nearly a 5% chance of the S&P closing at any price from ~3800 to ~4100 (red box) on 12/16 expiration.

What this is telling us is that the options market does not have much directional edge implied here, but it is pricing in some extreme moves.

SPX Closing Price Odds by Expiration

So where is edge unlocked for us? We think that its into Thursday & Friday wherein the giant OPEX is going to grab hold of markets and greatly influence price. Because the path of market prices over the next several days is so data dependent, it’s a guessing game to pull out a directional edge (as implied by options data above). The curveball here is that one cannot ignore markets “not doing much”.

Why?

Normally we would be looking for the OPEX to reinforce price trend. Meaning, if Powell is hawkish and the market drives lower, we’d anticipate OPEX driving stock prices lower (or dovish Powell = higher stocks). However, note that 40% implied volatility figure we noted at the top – that is massive. This tells us that expectations for CPI & FOMC volatility are huge.

One could argue that in order to full-fill these expectations we need “shock & awe” out of Powell. The issue with this is that options have “extreme” IV, but what if we only get “large” price moves (not extreme price moves)? Then suddenly those really expensive options come for sale – which could crush volatility.

Said more simply, volatility generally comes when expectations are exceeded. Expectations are currently very high – and for good reason. If Powell fails to deliver policy that exceeds those elevated expectations then all of those “jacked up” 12/16 options get crushed in value which could result in

SpotGamma Proprietary SPX Levels Latest Data SPX Previous SPY NDX QQQ
Ref Price: 3934 3960 393 11563 282
SG Implied 1-Day Move:: 0.87%, (±pts): 34.0 VIX 1 Day Impl. Move:1.44%
SG Implied 5-Day Move: 2.77% 3934 (Monday Ref Price) Range: 3825.0 | 4043.0
SpotGamma Gamma Index™: -0.56 -0.16 -0.23 0.05 -0.06
Volatility Trigger™: 3960 3985 396 11490 285
SpotGamma Absolute Gamma Strike: 4000 4000 400 11650 280
Gamma Notional(MM): -364.0 -251.0 -1113.0 7.0 -434.0
Put Wall: 3800 3900 380 11000 280
Call Wall : 4100 4100 410 11650 290
Additional Key Levels Latest Data Previous SPY NDX QQQ
Zero Gamma Level: 3983 3971 398.0 10872.0 300
CP Gam Tilt: 0.88 0.9 0.72 1.47 0.76
Delta Neutral Px: 3931
Net Delta(MM): $1,928,461 $1,918,313 $201,123 $59,083 $101,667
25D Risk Reversal -0.05 -0.05 -0.05 -0.04 -0.05
Call Volume 455,483 436,147 1,530,072 5,652 646,712
Put Volume 880,404 648,108 2,076,684 6,498 928,977
Call Open Interest 7,002,713 7,010,457 8,374,665 75,108 5,427,767
Put Open Interest 12,258,561 12,302,725 13,865,198 71,405 7,204,949
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): [(4123.0, 74.38), (4100.0, 92.73), (4076.0, 78.57), (4048.0, 87.28), (3926.0, 77.27), (3899.0, 94.16), (3891.0, 76.06), (3875.0, 81.57), (3852.0, 93.97), (3836.0, 85.89), (3824.0, 80.67), (3801.0, 97.3), (3773.0, 79.63), (3753.0, 75.73), (3749.0, 89.94)]
SPY Combo: [379.91, 389.74, 385.02, 409.8, 374.8]
NDX Combo: [11644.0, 11482.0, 11066.0, 11274.0, 11887.0]
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