Futures have broken lower to 3885 ahead of today’s large OPEX. Support shows at 3860, then 3800. Resistance shows at 3900, then 3950. As the Put Wall did not roll lower from 3900, we view the market as oversold when <=3900.
FedEx’s view of the macro landscape certainly put a damper on things last night, and the stock is -19% premarket. This knocked futures lower AH, and they have been down since (currently -1%).
The shift lower in markets has re-energized put values (teal bars, below). This means that we are now back to a put-weighted expiration, and in these environments we often see lows come on the Monday after OPEX (i.e. 9/19).
Recall that markets drove lower into both March & June quarterly expirations. You can see in the chart below a jump after June OPEX – and also gaps in the market tied to July & August expiration. Whats interesting here is that July was a put-weighted expiration (market gap up) & August was call-weighted (market gap down).
Todays large options expiration will remove about 20% of total S&P put positions (delta weighted) which should serve to reduce volatility and offer some support into next week. Our call for volatility reduction relates to the idea that smaller total options positioning (due to expiration) leads to smaller hedge positions and therefore less market influence.
What makes things more convoluted here, is FOMC on 9/21.
To this point, this mornings equity futures decline is leading the VIX back to 1 month highs. You can see below that the VIX term structure is elevated vs yesterday, and poised to shift into a backwardation. Backwardation implies fear in markets, and put demand.
Implied vol has been a bit funky the last several sessions, seeming unresponsive to the market declines(see here). Should IV now pick up, that will likely pressure markets lower as dealers have to hedge downside risks. Further, because of next weeks FOMC, IV should remain bid through Wednesday.
The thing that continues to make us very uncomfortable about this situation is this lack of real response in implied volatility. We outlined this dynamic in detail here, but the concern is that higher implied volatility (i.e. VIX testing 40) invokes convexity. IV “breaking out” is likely what takes these “grind down” markets to “limit down” markets.
This is not to say we forecast fresh VIX highs – we think IV shifts rest on Powell’s shoulders. We are simply trying to impart on you all this thought that if we have 3-5% down days and VIX stays <30, then what happens in a situation where VIX jumps to 40?
In the end, we are looking for 9/21 FOMC to spark a large directional move, and riding that trend may be the cleanest trade here. A fresh options cycle (call building/put selling lower IV, or call selling/put buying & higher IV) will build into October OPEX, which should reinforce momentum in either direction.
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 3901 | 3897 | 390 | 11927 | 291 |
| SG Implied 1-Day Move:: | 0.97%, | (±pts): 38.0 | VIX 1 Day Impl. Move:1.67% | ||
| SG Implied 5-Day Move: | 2.92% | 4067 (Monday Ref Price) | Range: 3949.0 | 4186.0 | ||
| SpotGamma Gamma Index™: | -1.37 | -1.21 | -0.52 | -0.04 | -0.19 |
| Volatility Trigger™: | 3920 | 4000 | 411 | 12030 | 296 |
| SpotGamma Absolute Gamma Strike: | 3900 | 4000 | 390 | 12000 | 290 |
| Gamma Notional(MM): | -875.0 | -1048.0 | -2498.0 | -7.0 | -1145.0 |
| Put Wall: | 3900 | 3900 | 390 | 12000 | 290 |
| Call Wall : | 3950 | 4005 | 430 | 12100 | 315 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 3953 | 4131 | 407.0 | 12094.0 | 324 |
| CP Gam Tilt: | 0.72 | 0.62 | 0.45 | 0.69 | 0.49 |
| Delta Neutral Px: | 3987 | ||||
| Net Delta(MM): | $1,719,344 | $1,932,463 | $213,646 | $44,697 | $108,582 |
| 25D Risk Reversal | -0.05 | -0.06 | -0.05 | -0.05 | -0.06 |
| Call Volume | 586,628 | 523,628 | 3,506,032 | 7,365 | 1,039,144 |
| Put Volume | 971,247 | 950,126 | 4,337,545 | 6,001 | 1,618,915 |
| Call Open Interest | 6,986,202 | 6,834,585 | 7,957,423 | 78,955 | 5,099,579 |
| Put Open Interest | 11,290,529 | 11,868,315 | 13,866,487 | 77,567 | 7,498,059 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4000, 3950, 3900, 3800] |
| SPY: [400, 395, 390, 385] |
| QQQ: [300, 295, 290, 285] |
| NDX:[13000, 12500, 12000, 11900] |
| SPX Combo (strike, %ile): [(4007.0, 89.51), (3948.0, 93.15), (3925.0, 79.3), (3921.0, 85.8), (3913.0, 87.62), (3909.0, 88.03), (3905.0, 91.08), (3901.0, 99.99), (3894.0, 86.44), (3890.0, 92.53), (3886.0, 81.42), (3882.0, 88.81), (3874.0, 94.48), (3870.0, 76.66), (3851.0, 95.62), (3800.0, 97.88)] |
| SPY Combo: [390.12, 379.98, 385.05, 387.39, 394.8] |
| NDX Combo: [11880.0, 11677.0, 11999.0, 12083.0, 11927.0] |
