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Informe SG Levels

Jun 9, 2022 | Informe Option Levels, Option Levels | 0 Comentarios

Macro Theme:

  • A sustained rally is unlikely to occur until May 4th which holds the FOMC. Due to this events, volatility (i.e. large puts) is unlikely to be meaningfully sold. This prevents an extended rise in equities.
  • A break of 4200 invokes our “lower bound” concept, valid into 5/4.
  • We see substantial, longer-term support at 4050 due to large open interest at 4000.

Daily Note:

Futures are trading at 4145 after touching overnight lows of 4115. We look for a volatile session, with an SG Implied Move of 1.2%(open/close). The VIX is trading near 34, which implies a 2.14% daily move for the SPX. Key resistance is at 4200 SPX. Support lies at 4120 SPX (410 SPY equivalent) then 4049. We’re assigning an edge to a recovery rally for today, as outline below.

Fridays expiration brought a reduction in negative gamma across the board, with large strips of puts being closed due to Fridays expiration. This doesn’t change our forecasts much, but its interesting in that it suggests traders reduced some put exposure.

Even though puts were closed, SPX IV is sharply backwardated. This obviously suggests market fear, but it also signals puts are quite expensive. We see these steep put prices as a deterrent for traders who are now focused on Wednesdays catalyst. This could relieve some short term pressure on markets, and we think result in a bit of a market recovery today/tomorrow.

SPX Term Structure, source: Interactive Brokers

All of our data continues to line up with our core themes of a stretching into alower bound<4200, and large support at 4050.

The weekend brought little news of market significance, and we now just 2 sessions off of our key 5/4 date. Currently the FOMC is the only major event for Wednesday, as it appears Russia has avoided default (5/4 was the payment deadline).

First, in regards to 4050, we highlight that level due to the large open interest at 4000 as shown below. Our models show a distinct kink in the gamma curves near 4050, which implies support in that area. If we were to test 4050 pre-FOMC, we’d anticipate a bounce purely due to “options positioning”. This comes not only from large put positions, but there is a material amount of call positioning, too. Further a visit to this area would likely correpsond with another surge in IV, and we believe dealers are long tail risk. This means that they are getting a vega payout, alleviating them of some short delta obligations. In turn, they can offer more liquidity which supports markets (we’ll aim to post this concept today).

Our opinion remains that it would take a true event (ex: credit default) to trigger 4000 before the FOMC. Further, for a move <4000 post-FOMC we think we’d have to see the Fed come off as “extra-hawkish”.

To this point, we’ve been flagging this MOVE/VIX divergence for the better part of a month, and now it seems the VIX is playing some catch up. We think the FOMC is the “make or break” trigger for either bond volatility to reduce leading to a VIX decline, or VIX gaps higher to catch up to a rising MOVE Index (we’re in the first camp). The farther the market declines into FOMC, the more of a “miss” that is required for the Fed to trigger a stock decline (lower market->higher IV-> higher market drawdowns required for puts to pay off).

In summary, we are looking for a short term bounce here in markets with a large directional move coming out of the 5/4 FOMC. While we give an edge to a bounce today, we respect the markets unrelenting pressure. If the SPX does tag 4050 area today/tomorrow then we’d move from assigning an “edge” to a bounce, to something more material.

SpotGamma Proprietary Levels Latest Data Previous SPY NDX QQQ
Ref Price: 4128 4128 412 12854 313
SpotGamma Imp. 1 Day Move:
Est 1 StdDev Open to Close Range
1.23%, (±pts): 51.0 VIX 1 Day Impl. Move:2.15%
SpotGamma Imp. 5 Day Move: 2.81% 4128 (Monday Ref Px) Range: 4013.0 | 4245.0
SpotGamma Gamma Index™: -1.42 -0.82 -0.37 -0.02 -0.13
Volatility Trigger™: 4400 4285 432 13950 335
SpotGamma Absolute Gamma Strike: 4000 4300 420 14050 300
Gamma Notional(MM): -714.0 -1014.63 -1715.0 -2.0 -796.0
Additional Key Levels Latest Data Previous SPY NDX QQQ
Zero Gamma Level: 4499 4431 0 0 0
Put Wall Support: 4000 4100 400 13000 300
Call Wall Strike: 4700 4700 450 14050 360
CP Gam Tilt: 0.58 0.47 0.39 0.75 0.45
Delta Neutral Px: 4381
Net Delta(MM): $1,626,228 $1,596,708 $177,672 $37,397 $97,814
25D Risk Reversal -0.09 -0.13 -0.06 -0.07 -0.05
Call Volume 416,873 547,225 1,620,057 1,894 709,173
Put Volume 1,051,456 900,071 2,545,763 3,276 1,094,076
Call Open Interest 5,146,977 5,226,302 5,799,868 47,880 3,747,842
Put Open Interest 9,001,025 10,030,932 10,008,639 45,096 5,767,146
Key Support & Resistance Strikes:
SPX: [4400, 4300, 4200, 4000]
SPY: [430, 420, 410, 400]
QQQ: [330, 325, 320, 300]
NDX:[14050, 14000, 13500, 13000]
SPX Combo (strike, %ile): [4096.0, 4195.0, 4145.0, 4046.0, 4248.0]
SPY Combo: [408.7, 418.59, 413.65, 403.76, 423.95]
NDX Combo: [12726.0, 13138.0, 12521.0, 12932.0]
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