Futures are steady near 3950, with traders pricing in very low volatility for today. Todays ATM straddle is just $26 (ref 3925). Large support for today is at 390SPY (3915SPX) to 3900 SPX. Resistance is at 3923 then 3950. Note this creates an effective range of 3900-3950 for today, which is roughly ±$25 from the indicative SPX open.
While traders anticipate low volatility for today, they are pricing in a giant move for tomorrow with ATM IV = 50%. This appears to be higher than expectations for the 12/13 CPI print as shown below. Meanwhile relative longer dated IV is currently lower (indicated by current term structure in white, vs last month in red). This suggests traders are hedging against huge movement tomorrow/Friday, but have little concern out past January.
Heading into that Dec CPI print, we wrote in our AM note that this ultra-high IV could serve to crush realized volatility. Essentially when expectations are for, say, 6 standard deviation moves, anything less is a disappointment that leads to volatility selling that leads to mean reversion on the initial move.
Yesterday we drew out the key zones, as shown below. The two huge options levels are currently 380SPY/3800SPY (Put Walls), then specifically 390 SPY, and 4000 in the SPX. 390 SPY & 4000 SPX strikes have very large gamma tied to them (see here) which creates 390 as an important pivot area, and 4000 above as near term resistance area.
Essentially what we see is that on positive CPI reading (i.e. CPI <= expectations) the SPX should pop quickly into the 4000-4050 area and then consolidate around 4000. To the downside it would have to take a very sharp CPI miss to break 3800 into Jan OPEX, which has retrenched as a major support line.
Recently we have been discussing the chance of a very strong January rally, driven by traders concerned about missing market rallies. We consolidated those ideas into a longer form piece here, which goes along with earlier Founders notes here. On this “VIX up, market up” point, its possible that a dovish CPI sparks a sharper rally into next week, but we are not yet seeing much activity at strikes >=4000.
Recall that in the Dec 13th CPI there was this very clear fear of missing a right-tail move (like banks putting out calls for 10% rallies of a positive CPI). We do not appear to have that same skew heading into tomorrow, and really need to see data into Friday to have a better read on action into next weeks OPEX.
|SpotGamma Proprietary SPX Levels||Latest Data||SPX Previous||SPY||NDX||QQQ|
|SG Implied 1-Day Move::||1.19%,||(±pts): 47.0||VIX 1 Day Impl. Move:1.3%|
|SG Implied 5-Day Move:||3.0%||3894 (Monday Ref Price)||Range: 3777.0 | 4011.0|
|SpotGamma Gamma Index™:||0.14||-0.37||-0.15||0.04||-0.05|
|SpotGamma Absolute Gamma Strike:||4000||4000||390||11275||270|
|Call Wall :||4000||4000||392||11275||290|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||3921||3940||396.0||10708.0||303|
|CP Gam Tilt:||1.04||0.96||0.77||1.54||0.79|
|Delta Neutral Px:||3945|
|25D Risk Reversal||-0.04||-0.05||-0.03||-0.04||-0.04|
|Call Open Interest||5,762,785||5,676,329||6,639,273||66,701||4,763,677|
|Put Open Interest||10,189,975||10,026,010||11,929,273||59,285||6,509,911|
|Key Support & Resistance Strikes:|
|SPX: [4000, 3950, 3900, 3850]|
|SPY: [400, 390, 385, 380]|
|QQQ: [280, 275, 270, 265]|
|NDX:[12000, 11500, 11275, 11000]|
|SPX Combo (strike, %ile): [(4100.0, 91.92), (4076.0, 84.59), (4064.0, 86.51), (4049.0, 85.96), (4029.0, 78.52), (4025.0, 80.82), (4002.0, 95.06), (3982.0, 80.23), (3974.0, 87.82), (3955.0, 78.9), (3951.0, 89.24), (3923.0, 80.45), (3892.0, 75.14), (3849.0, 83.99), (3825.0, 77.69), (3814.0, 85.99), (3802.0, 94.62), (3774.0, 75.49), (3751.0, 89.36)]|
|SPY Combo: [398.78, 378.86, 408.55, 373.79, 393.7]|
|NDX Combo: [11272.0, 10678.0, 10880.0]|