Macro Theme:
Key dates ahead:
- 5/7: FOMC
5/5: We continue to see a negative volatility premium in the S&P500, which validates owning 1-2 month put spreads as referenced on 4/25. Those puts were hedged with short dated/Friday exp long call structures, which profit if the SPX rallies >=5,700.
4/25: <=25 delta 1-month S&P500 puts/put spreads make sense on a risk/reward basis given ATM IV in SPX is ~25%, which is at or below short term realized vol. This is not a call for a market decline, as much as we see the potential for that outcome, and the price to play it seems reasonable. This is true particularly given next weeks earnings and macro prints.
4/29: Based on the formation of light positive gamma >5,500, we look to be net long of stocks while SPX holds that level. We recommend short dated (May exp) calls or call spreads. This does not invalidate the view of owning longer dated put hedges (per 4/25 update).✅
Key SG levels for the SPX are:
- Resistance: 5,800 (no clear resistance level >5,500)
- Support: 5,500 (no clear support level <5,500)
Founder’s Note:
Futures are off 75bps. ISM PMI is at 10AM EST.
Here is the lay of the land:
- Friday’s move marked a full price recovery from Liberation Day.
- Heading into today the S&P is on a 9-day win streak – the longest such streak since 2004. This just days after the largest intraday price range (10%) since 2000.
- We believe implied vols are trading with a negative risk premium and that can only resolve with:
- Implied Vol shifting higher
- Markets trending sideways for several days (i.e. realized vol comes down)
- SPY negative gamma is a dominant factor, with heavy negative gamma from 530 – 590 (see Sunday Night Note).
- Liquidity remains poor, which can exacerbate volatility (movement up & down).
Negative gamma, high vol/vol of vol, and poor liquidity all make for unstable markets. This works in both price directions – however we have higher concerns for downside here due to the negative IV premium.
This is the current SPY IV premium (1-month RV vs 1-month IV).
With that, for today, we see little to stop price action as IV is sliding higher, and there is predominately negative gamma from 5,800 all the way down to 5,500 (yellow box). There is a small pocket of positive gamma from 5,635 – 5,675, but that currently strikes us as a bit too low to offer much resistance. If that area fills in with some 0DTE positive gamma strikes it may be more volatility-suppressing/higher resistance.
We think realized vol is unlikely to calm until we see material positive gamma increase.
It was clear after Friday’s benign NFP that vol was going to get a bit of extra downside pressure due to the weekend effect. We this morning see that vol is mean reverting higher, as shown with 1-month skew from Friday (gray) vs today (teal).
Implied vols for expirations >=Wednesday should now remain sticky due to the upcoming FOMC, which is likely the next major market trigger (save for some random tweets). This may be one of the more interesting FOMC’s as there is not only the reaction to policy updates, but markets will have to react to the POTUS reaction to policy updates.
|
|
/ES |
SPX |
SPY |
NDX |
QQQ |
RUT |
IWM |
|---|---|---|---|---|---|---|---|
|
Reference Price: |
$5708.52 |
$5686 |
$566 |
$20102 |
$488 |
$2020 |
$200 |
|
SG Gamma Index™: |
|
0.283 |
-0.065 |
|
|
|
|
|
SG Implied 1-Day Move: |
0.76% |
0.76% |
0.76% |
|
|
|
|
|
SG Implied 5-Day Move: |
1.95% |
1.95% |
|
|
|
|
|
|
SG Implied 1-Day Move High: |
After open |
After open |
After open |
|
|
|
|
|
SG Implied 1-Day Move Low: |
After open |
After open |
After open |
|
|
|
|
|
SG Volatility Trigger™: |
$5657.52 |
$5635 |
$566 |
$19890 |
$484 |
$2000 |
$200 |
|
Absolute Gamma Strike: |
$6022.52 |
$6000 |
$550 |
$20000 |
$490 |
$2000 |
$200 |
|
Call Wall: |
$5822.52 |
$5800 |
$575 |
$20300 |
$500 |
$2110 |
$210 |
|
Put Wall: |
$5222.52 |
$5200 |
$530 |
$19000 |
$450 |
$1850 |
$190 |
|
Zero Gamma Level: |
$5675.52 |
$5653 |
$565 |
$19311 |
$484 |
$2016 |
$211 |
|
|
SPX |
SPY |
NDX |
QQQ |
RUT |
IWM |
|---|---|---|---|---|---|---|
|
Gamma Tilt: |
1.045 |
0.905 |
1.405 |
1.103 |
1.015 |
0.569 |
|
Gamma Notional (MM): |
$113.271M |
‑$136.859M |
$6.743M |
$156.006M |
$1.867M |
‑$692.429M |
|
25 Delta Risk Reversal: |
-0.07 |
-0.052 |
-0.055 |
-0.051 |
-0.057 |
-0.038 |
|
Call Volume: |
518.747K |
1.42M |
9.305K |
780.862K |
22.609K |
407.965K |
|
Put Volume: |
908.489K |
2.564M |
8.677K |
1.164M |
31.003K |
799.128K |
|
Call Open Interest: |
7.744M |
6.187M |
67.723K |
3.70M |
293.088K |
3.822M |
|
Put Open Interest: |
12.624M |
10.975M |
67.147K |
5.433M |
426.796K |
8.224M |
|
Key Support & Resistance Strikes |
|---|
|
SPX Levels: [6000, 5000, 5700, 5800] |
|
SPY Levels: [550, 570, 560, 575] |
|
NDX Levels: [20000, 20010, 19500, 19900] |
|
QQQ Levels: [490, 485, 500, 480] |
|
SPX Combos: [(5954,75.30), (5908,89.20), (5903,91.92), (5852,89.88), (5823,73.42), (5800,95.34), (5778,74.63), (5772,80.06), (5749,89.05), (5726,85.60), (5721,77.16), (5709,72.33), (5704,85.22), (5550,68.59), (5499,82.40), (5454,77.72)] |
|
SPY Combos: [578.02, 568.52, 563.5, 538.37] |
|
NDX Combos: [20565, 20143, 20364, 20324] |
|
QQQ Combos: [485.05, 499.98, 489.87, 495.17] |