Futures have dropped ~1% to 3885, indicating the S&P is set to open near 3855. 3900 is the major level today, and overhead resistance. This is followed by 3925 (Vol Trigger), and 3950. Key downside levels are 3878 and 3800 (SPY 380 Put Wall).
We continue to favor the market regaining 3900. We do advise that the risk of being wrong on this view could be high, as we discussed in yesterday’s AM note. This is because below 3900 is mainly put positions, and could sync with a large pop in implied volatility. This is a formula for large, “panicky” moves lower.
However, despite the market weakness yesterday we did/do not read much fear in positioning and/or IV changes. Our skew readings remain flat, and IV is stirring (i.e. VIX 23) but not yet agitated (VIX>25).
One of the big drivers today is expiration, which is one of the largest on record (in delta terms). Shown below is delta (calls = positive bars, puts = negative bars) for SPX+SPY+QQQ+NDX, and we see ~40% of total delta expiring today. Our default view here is that this expiration is now put-weighted, and the expiration of large net puts could provide a brief lift for markets into Monday.
We had anticipated that OPEX would provide some bounce at the 3900 yesterday, but as we noted last night, there was little very little action at 3900. Just because traders didn’t want to sell puts/vol at that strike, it didn’t mean they want to buy them, either.
The net effect of all this is that 390SPY/3900 SPX has become the largest gamma strike for today’s expiration – its todays point of “fair value”. This positioning also syncs with the 3900 pin action we saw yesterday, and the idea that neither buyers or sellers gained (or wanted) advantage yesterday. With today’s OPEX, this pin (and markets rotation around it) is likely gone.
One last point of a more “structural” nature. 0DTE options volume for the last two sessions was quite light at 30-40% despite strong overall SPX volumes. Shown below is 0DTE SPX volume, and you can see its “disappeared “broken trend” post-FOMC. Quite odd.
And while correlation does not equal causation, EMini liquidity also evaporated yesterday. Per ZH: “liquidity is down to ~$3mm on the touch – just not enough if people want to do reallocation trades.” This means that a mere $3 million order of Eminis (i.e., S&P futures) is enough to move the market by one tick; it has never been lower!”
The point here is that it feels like something happened, operationally speaking, post FOMC. We’re unsure of the “how or why” but feel the need to flag it, as low liquidity leads to high volatility (in both directions).
|SpotGamma Proprietary SPX Levels||Latest Data||SPX Previous||SPY||NDX||QQQ|
|SG Implied 1-Day Move::||0.84%,||(±pts): 33.0||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™:||-0.63||0.02||-0.36||0.04||-0.10|
|SpotGamma Absolute Gamma Strike:||3900||4000||390||11500||280|
|Call Wall :||4000||4100||391||11650||285|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||4018||4018||398.0||11089.0||307|
|CP Gam Tilt:||0.88||0.69||0.62||1.57||0.71|
|Delta Neutral Px:||3923|
|25D Risk Reversal||-0.04||-0.03||-0.04||-0.03||-0.04|
|Call Open Interest||7,401,373||7,219,756||8,111,915||81,521||5,753,625|
|Put Open Interest||12,740,352||11,980,107||14,645,268||70,733||7,164,380|
|Key Support & Resistance Strikes:|
|SPX: [4000, 3950, 3900, 3850]|
|SPY: [400, 390, 385, 380]|
|QQQ: [285, 280, 275, 270]|
|NDX:[11650, 11500, 11400, 11300]|
|SPX Combo (strike, %ile): [(4053.0, 80.82), (4003.0, 94.82), (3975.0, 75.67), (3952.0, 91.2), (3929.0, 79.28), (3901.0, 98.64), (3894.0, 78.67), (3886.0, 74.95), (3878.0, 94.61), (3862.0, 85.56), (3851.0, 97.59), (3835.0, 90.22), (3827.0, 82.97), (3800.0, 96.82), (3753.0, 87.39), (3749.0, 79.08)]|
|SPY Combo: [390.02, 384.95, 379.89, 400.15, 387.68]|
|NDX Combo: [11470.0, 11652.0, 10857.0, 11266.0, 11062.0]|