Futures were quiet overnight, holding near 4160. Key SG levels reflected moderately bullish positioning, with the SPX Call Wall flipping back up to 4200. 4200 is our max high for today and into tomorrow. 4150-4160(SPY 415) is the pivot area, with 4110(SPY 410) – 4100 support.
As the SG implied move is now under 1% we would not anticipate a close below 4100 today. However, we think that 4100 is vulnerable tomorrow into early next week.
Additionally due to OPEX, we favor mean reversion (i.e. consolidation of gains) in many single stocks which have been performing strongly like TSLA, ARKK, COIN, etc.
The amount of attention being foisted back onto the 0DTE narrative is quite remarkable. It’s drawing in comments from macro pundits, and cries of “Volmeggedon 2.0″ (these are risks which we outlined back in October, in this Founders Note, and this video).
As we wrote in that October note, “Volmeggedon” is essentially just a “liquidity cascade” (as well covered by Newfound Research).
We are working hard at a comprehensive SPX 0DTE study, but we wanted to share our key early views:
- 0DTE driven “Volmegeddon” moves have certainly already happened in single stocks. See “Meme Mania ’21” or the wild market movement just a few weeks ago.
- We do not agree with the idea that most 0DTE is being net heavily sold. There seems to be a desire to package 0DTE flow as “all retail” or “all sellers” but we believe it is a mix of strategies and entities (funds, retail, dealers).
- The risk from 0DTE (in our view) comes from a heavy imbalance (ex: too many non-hedgers short downside). We think a lot of 0DTE is one dynamic-hedger trading with another dynamic hedger, and/or underling replacement (i.e. buy calls instead of long stock). The place that would most likely drive a heavy imbalance is a large entity coming in with a big, well timed long 0DTE call or put position that elicits sudden, impactful hedging flow. “Accidental imbalance” is certainly a risk, but we think less likely.
- This “large actor” imbalance may have already happened at least once, see October 13th, 2022 wherein someone purchased ~$25mm of 0DTE calls which sparked at 5% market rally. Full discussion here.
- Finally, SPX 0DTE seems to currently be used to aggressively drive markets higher off of lows, as opposed to push markets to the downside. We hypothesize that traders which are long puts into weakness may be using 0DTE calls to gamma hedge.
Lastly, 0DTE is leading some to cry “the VIX is dead!”. The first-order line of thinking here is that because of the effects of heavy 0DTE volume, the VIX isn’t a relevant calculation. It is true that the VIX does only measure the value of SPX options 25-33 days to expiration. The point here isn’t whether or not the VIX is useful (we think it is), but it seems to be that the “VIX is dead” is a way of declaring that “0DTE is all that matters”. This, we think, is incorrect. The VIX likely isn’t doing much because of low hedging demand, and a decline in realized volatility.
If & when large institutions decide they need to start hedging, they will likely due so using options that expire farther out in time. These large flows are, again, something we have not seen for several months, during a time of increasing 0DTE flows.
Enter: “50 cent”. This name was bestowed upon a large trader that used to specialize (quite successfully) in buying VIX calls with a price of 50 cents. After a long hiatus, they’re back as you can see below with several large clips of May 50 strike VIX calls.
We’d also highlight the very large VIX call buying from last week, too.
The point here is that as portfolios add equity exposure, the need for meaningful hedges should increase, in turn. This adds volatility-potential during market downturns, possibly in a way which wasn’t seen in the back half of ’22. During times of fear and volatility driven by “real money” hedging, we suspect those 0DTE flows will suddenly subside.
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4147 | 4134 | 413 | 12687 | 309 |
| SG Implied 1-Day Move:: | 0.93%, | (±pts): 39.0 | VIX 1 Day Impl. Move:1.15% | ||
| SG Implied 5-Day Move: | 2.76% | 4090 (Monday Ref Price) | Range: 3978.0 | 4203.0 | ||
| SpotGamma Gamma Index™: | 1.34 | 1.09 | -0.08 | 0.05 | 0.04 |
| Volatility Trigger™: | 4060 | 4095 | 412 | 12290 | 308 |
| SpotGamma Absolute Gamma Strike: | 4150 | 4000 | 415 | 12600 | 310 |
| Gamma Notional(MM): | 439.0 | 295.0 | -437.0 | 10.0 | 171.0 |
| Put Wall: | 3900 | 4000 | 400 | 10500 | 300 |
| Call Wall : | 4200 | 4150 | 418 | 12600 | 310 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4102 | 4090 | 416.0 | 11486.0 | 316 |
| CP Gam Tilt: | 1.35 | 1.15 | 0.9 | 1.87 | 1.1 |
| Delta Neutral Px: | 4021 | ||||
| Net Delta(MM): | $1,645,921 | $1,644,372 | $196,053 | $66,991 | $108,092 |
| 25D Risk Reversal | -0.03 | -0.05 | -0.05 | -0.04 | -0.04 |
| Call Volume | 517,606 | 631,979 | 1,791,030 | 7,953 | 630,045 |
| Put Volume | 1,012,852 | 1,192,898 | 2,349,039 | 5,446 | 938,687 |
| Call Open Interest | 6,249,004 | 5,962,527 | 6,714,303 | 72,205 | 5,145,834 |
| Put Open Interest | 11,407,951 | 11,462,136 | 15,024,738 | 67,969 | 8,807,719 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4200, 4150, 4100, 4000] |
| SPY: [418, 416, 415, 410] |
| QQQ: [315, 310, 305, 300] |
| NDX:[13000, 12650, 12600, 12500] |
| SPX Combo (strike, %ile): [(4351.0, 87.1), (4326.0, 77.83), (4301.0, 97.19), (4276.0, 89.6), (4251.0, 95.5), (4226.0, 94.28), (4218.0, 79.64), (4210.0, 79.86), (4206.0, 90.43), (4201.0, 99.07), (4193.0, 82.27), (4189.0, 94.12), (4185.0, 84.92), (4181.0, 87.13), (4177.0, 97.81), (4168.0, 86.87), (4160.0, 84.12), (4156.0, 83.1), (4152.0, 96.97), (4139.0, 76.59), (4102.0, 88.56), (4065.0, 82.89), (4048.0, 80.05), (4006.0, 81.85), (3998.0, 89.46), (3948.0, 90.12)] |
| SPY Combo: [419.36, 416.88, 429.3, 414.39, 424.33] |
| NDX Combo: [12726.0, 12929.0, 13132.0, 12320.0, 12650.0] |
