Informe Option Levels

Futures held a remarkably tight 15pt range overnight, sticking to 3985. The S&P is in no mans land with both price and IV in a very neutral position. Resistance for today is at 4000, then 4015 (SPY 400). Support shows at 3965 (SPY 395) then 3950. 3915 (SPY 390) & 3900 hold as a critical, longer term support levels. While above 3900 we see markets able to mean revert (aka bounce), however a break of that area likely means a test of 3850.

This week starts the Fed blackout period into 2/1 which may help reduce “tape bombs”. Key earnings kick off this week which may shift traders focus to single stock stories. Much of short term market movement may now key off of “recessionary” earnings narratives.

Overall, while levels look fairly similar to last week, OPEX served to weaken them. The fairly large Jan OPEX also reduces some of the upside bias (calls) in single stocks. We do not anticipate a high volatility session today, within 3900 holding as support, and 4000 resistance. There doesn’t appear to be any skew to favor a break of one side or the other.

Our models turn bullish on a close over 4000, with room to move up to 4050. A break of 3900 flips positioning much more put-heavy, which suggests that markets lose their ability to bounce.

Implied volatility remains near the low end of its “fair value” and this may reduce vanna as a key driver of upside movement – particularly over 4000. This does not mean that IV has to suddenly spike, and is unlikely to do so while the SPX is >3900. Arguably traders have some incentive to sell pre-FOMC IV, which should support markets as a test of 3900 (as traders sell relative spikes in puts/IV).