Futures are up slightly to 3820, suggesting an SPX open near 3800. The SPX Put Wall has rolled lower to 3700, with the SPY Put Wall remaining at 375. We therefore shift our major support line down to 375 SPY (3765SPX). 3800 Now becomes the pivot line, and 3835 is first resistance followed by more significant resistance at 3850.
As we noted several times, the gamma tied to the 3835 JPM collar call has strengthened at-the-money, but weakened at the wings (see here). Now, there isn’t a lot of gamma to the position<=3800, but gamma increases sharply >3800. As this position expires tomorrow, if markets are >3800 then the gamma and charm/decay of 3835 JPM call should function to provide positive drift today as dealers buy futures. Conversely, dealers should be sellers of futures >3835 which should help maintain the 3835 area pin.
If the S&P moves toward that 3835 level early today, it increases the chance that we lock in there for the remainder of the day.
The “map” of these flows for today looks something like this:
JPM-related flows pick up tomorrow, but there are likely other various year end adjustments, too. As the market is in close proximity to that call position, there are several billion dollars in value that will swing around the strike, mixed in with a slew of other flows and poor holiday liquidity. Added to this is about 30% of total SPY gamma expiring.
The bottom line is that the JPM collar + SPY gamma roll-off, which was a source of pinning, may now become a source of volatility as large positions are rolled. This is particularly true tomorrow, as hedges adjust to the new JPM collar.
The JPM collar trade has been to sell a ~2-3% OTM call, and using those proceeds to buy a put spread. The call sale offsets the price of the put spread, and provides a downside hedge (i.e. negative deltas) to the JPM funds long equity exposure. The market impact of this trade lies with the resulting dealer positive delta exposure, which they offset through a complicated web of short futures, selling a 0DTE deep ITM call, and market on close orders.
Further, we are always weary that the general exposure or visibility of this trade incentivies dealers to adjust their behavior. In other words, they may adjust how they enter the trade(s), making it more difficult to track in real time.
Zooming out, the expiration of this position should also free market movement up for January. We are growing more amenable to the idea of a sharp rally in January, as discussed here & here. The timing of this could a bit tricky, but our view is that it would be driven by large puts expiring on 1/23.
|SpotGamma Proprietary SPX Levels||Latest Data||SPX Previous||SPY||NDX||QQQ|
|SG Implied 1-Day Move::||1.19%,||(±pts): 45.0||VIX 1 Day Impl. Move:1.4%|
|SG Implied 5-Day Move:||3.07%||3844 (Monday Ref Price)||Range: 3726.0 | 3962.0|
|SpotGamma Gamma Index™:||-1.22||-0.7||-0.46||-0.00||-0.11|
|SpotGamma Absolute Gamma Strike:||4000||4000||375||11275||265|
|Call Wall :||3835||3835||390||11275||310|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||3872||3891||390.0||10597.0||298|
|CP Gam Tilt:||0.68||0.69||0.46||1.04||0.53|
|Delta Neutral Px:||3895|
|25D Risk Reversal||-0.04||-0.04||-0.03||-0.04||-0.04|
|Call Open Interest||5,609,516||5,539,084||6,972,796||56,827||4,964,375|
|Put Open Interest||9,774,163||9,533,241||12,047,035||48,831||5,908,592|
|Key Support & Resistance Strikes:|
|SPX: [4000, 3900, 3850, 3800]|
|SPY: [385, 380, 375, 370]|
|QQQ: [280, 270, 265, 260]|
|NDX:[12000, 11500, 11275, 11000]|
|SPX Combo (strike, %ile): [(3836.0, 97.39), (3817.0, 83.68), (3798.0, 96.73), (3776.0, 91.89), (3764.0, 94.03), (3760.0, 76.92), (3757.0, 75.99), (3749.0, 97.78), (3734.0, 77.01), (3726.0, 86.03), (3715.0, 89.92), (3700.0, 97.78), (3673.0, 82.51), (3666.0, 83.16), (3651.0, 90.16), (3617.0, 82.17), (3602.0, 95.25)]|
|SPY Combo: [368.37, 373.27, 381.93, 378.17, 358.58]|
|NDX Combo: [10679.0, 10882.0, 10263.0, 10466.0]|