Futures are trading at 3685, down from overnight highs of 3717. Both the SPX & SPY Put Walls have moved lower ( to 3600 & 350), which is a bearish signal. We see support at 3651 then 3616. Resistance is at 3677 then 3700.
The Put Wall shifting to 3600 aligns with that major JPM collar put strike of 3580, which expires Friday, 9/30. This has been our key downside target for this week as we felt a large trend would form out of 9/21 FOMC. We feel this trend is still very much in play.
A close above 3700, today, does a lot of damage to this weeks downside thesis.
Through an options lens, this market is dominated by put action. This is something we’ve talked about at length, and detailed here. Essentially, puts being opened and closed, combined with changes in implied volatility are major market drivers.
This has been the case for nearly all of 2022, with the exception of August. Today we have the Put Walls rolling lower, combining with a tick higher in some skew/IV metrics(Risk Reversal to -0.07), and larger net put open interest for both SPX & SPY (QQQ put interest is down a fraction). This, in our view, is not what market bottoms are made of.
This put volume and interest generated lots of discussion this weekend, and led many to speculate that large put positions were closed on Friday which is a bottom signal. The chart of total puts below depicts record put volume, which is a fact.
However, this volume record needs context. Consider for a moment the table below which shows SPY options volume from Friday. It was a massive options volume day for SPY with 8.4mm puts traded (though, not a record). In the table below we break out the volume and delta traded (absolute sum of delta traded), and bucket this by expiration (left most column).
What you can clearly see is that 35% of total SPY volume was tied to Fridays 9/23 expiration (right column). Friday was a very small expiration to start the day – it was not a massive quarterly type OPEX. Further, >70% of total volume was in contracts which expired within 7 days!
This massive volume is purely short term speculative activity. Its at best betting on very short term market behavior, and at worst quasi-gambling. In our view this is not some large pension funds or asset managers closing up huge downside hedges on a random Friday.
This excessive shortest term expiration volume also exacerbates volatility. We speculate that the 1.2% ramp into Fridays close was tied to puts being closed – but those puts could have very likely just been added earlier in that AM. For example if you are long puts that expired Friday, once the market starts to rally you have to quickly jump to close your position or risk a loss – and this creates a chase to close 9/23 expiration positions.
Those 9/23 expiration put deltas being flipped around are just as real as longer term deltas, but they have way more gamma. Therefore any hedging associated with high general market movement invokes more, and faster, hedging.
We think its critical for market participants to be aware of this dynamic to place both trading action and options data into context.
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 3695 | 3690 | 367 | 11311 | 275 |
| SG Implied 1-Day Move:: | 1.12%, | (±pts): 41.0 | VIX 1 Day Impl. Move:1.87% | ||
| SG Implied 5-Day Move: | 2.7% | 3695 (Monday Ref Price) | Range: 3595.0 | 3795.0 | ||
| SpotGamma Gamma Index™: | -1.87 | -1.78 | -0.43 | -0.01 | -0.14 |
| Volatility Trigger™: | 4000 | 4000 | 400 | 11725 | 310 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 370 | 11750 | 290 |
| Gamma Notional(MM): | -1055.0 | -1220.0 | -2306.0 | -1.0 | -1024.0 |
| Put Wall: | 3600 | 3700 | 350 | 9200 | 270 |
| Call Wall : | 4300 | 4300 | 420 | 11750 | 315 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4007 | 3972 | 402.0 | 11470.0 | 319 |
| CP Gam Tilt: | 0.44 | 0.36 | 0.38 | 0.9 | 0.42 |
| Delta Neutral Px: | 4011 | ||||
| Net Delta(MM): | $1,539,839 | $1,447,128 | $217,418 | $45,282 | $113,826 |
| 25D Risk Reversal | -0.07 | -0.04 | -0.07 | -0.07 | -0.07 |
| Call Volume | 724,689 | 681,499 | 2,892,477 | 11,302 | 973,490 |
| Put Volume | 1,636,196 | 1,185,666 | 5,967,507 | 8,176 | 1,608,640 |
| Call Open Interest | 5,482,645 | 5,490,695 | 7,379,510 | 54,436 | 4,437,222 |
| Put Open Interest | 10,199,762 | 9,897,108 | 12,232,452 | 71,647 | 6,927,387 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4000, 3900, 3800, 3700] |
| SPY: [375, 370, 360, 350] |
| QQQ: [290, 285, 280, 275] |
| NDX:[12000, 11750, 9200, 9175] |
| SPX Combo (strike, %ile): [(3802.0, 92.2), (3751.0, 93.1), (3728.0, 74.42), (3714.0, 76.7), (3703.0, 94.96), (3677.0, 74.86), (3666.0, 77.4), (3651.0, 94.83), (3629.0, 80.12), (3614.0, 81.85), (3603.0, 97.57)] |
| SPY Combo: [358.75, 368.69, 363.53, 373.47, 378.62] |
| NDX Combo: [11085.0, 11492.0, 11289.0] |
