Informe Option Levels

Futures have pulled back to 4022, but up from overnight lows of 4000. Key SG levels are largely unchanged from yesterday, which indicates that 4050-4065(SPY 405) remains major overhead resistance. SPY 400 (SPX 4020) is also a notable level, and we see 4000 as large support. A break of 4000 likely leads to a test of 3962 (SPY 395) to 3950.

This week has been quite a tone shift from last weeks bullish sentiment/short covering/0DTE momentum chasing (see yesterdays note). To this point we did pick up some put positions being placed in the 3900’s, as indicated by 395SPY/3950SPX gaining as important gamma bars (vs having no large positions in the 3900’s over the last few sessions).

With that we are seeing a pickup in IV. As many of you know we have had a core theme of IV compressing as the market tops (see here). To this point, on Friday we say the VIX touch 18, only to now have pushed sharply higher to 20. The increase in IV is likely a natural response to traders now looking to hedge short FOMC movements, as well as ultra-short dated traders running out of expirations to sell (i.e. you don’t want to sell Thursdays options now because of tomorrows FOMC).

Despite this VIX pop, we still don’t register major downside hedging demand – and don’t expect to. Below is a snapshot from our IV model, which uses some proprietary logic to look at the “true change” in implied volatility from 1/25 to today. You can see that the areas of red indicate an increase in options IV which may suggest overall options demand. The ATM to downside strikes are generally in shades of blue, with short term upside strikes in red. This is a way of suggesting that skew, in the very short term, has increased (i.e. calls higher relative demand to puts).