Macro Theme:
- A sustained rally is unlikely to occur until 5/4/2022 (FOMC). Due to this, volatility (i.e. large puts) is unlikely to be meaningfully sold. This prevents an extended rise in equities.
- A break of $4,200.00 invokes our “lower bound” concept, valid into 5/4/2022.
- We see substantial, longer-term support at $4,050.00 due to large open interest at $4,000.00.
Daily Note:
Futures are at 4150 after overnight highs of 4175. Our volatility estimates remain in line with the last several days at 1.2% Resistance lies at 4200 to 4210 (SPY 420 equivalent), with 4250 above there. Support shows at 4110 (SPY 410 equivalent). Following that key support is at 4051.
Yesterday was quite a wild session with SPX declining 1.8% intraday, only to rally 2.2% in the final hour, and closing higher at 4155. This rally was driven by short covering in an illiquid market – regardless of trigger. Triggers just “matter more” in these high IV, negative gamma markets.
As such, a decline/retest of 4100 is just as likely as a test of 4200. Note though, that everything we outlined yesterday (i.e. “Lower Bound” mechanics, 4050 support) is still in place. Again we highlight that big IV/put sellers are not going to step out today due to todays FOMC, and this limits a sustained rally. To this same point, options are quite expensive, disincentivizing large buying today. Thus, a true directionalmove isn’t likely until tomorrow.
While we are assigning an edge to “market rally” out of the FOMC, this situation is different from March. Below we’ve plotted short dated IV for QQQ, and you can see that we’re in a backwardated “fear” state (short dated (purple dots) IV > slightly longer dated (yellow)). IV is currently above YTD highs, which makes sense given fresh QQQ lows. We’ve marked with a star roughly where the market was into March FOMC, and we had discussed the same lower bound mechanics into that event.
Whats different here is that there is not a large options expiration off of the back of this FOMC. In March we were getting a release of “event vol” tied to the FOMC statement, but also the massive kicker of huge put options expiring invoking large charm & vanna flows.
May 20th is the next expiration of significance for the S&P/QQQ (20% of delta) which suggests that we could get a good “vanna” (i.e. dealers covering short hedges off of IV declines) but without a “charm kicker” (i.e. dealers covering due to huge time decay), thus the asterisk on the chart.
To put it more plainly, we think that markets are setup for a solid rally, but this is about the resetting/relief of IV, not a removal of large put positions. This arguably limits the upside fuel, but recall that the rally in March was a massive 11% from lows. Here a sharp 5% rally places us back into the 4400 Vol Trigger area, which is what we’re currently sketching out as an upside target.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4155 | 4155 | 414 | 13075 | 318 |
| SpotGamma Imp. 1 Day Move: Est 1 StdDev Open to Close Range |
1.2%, | (±pts): 50.0 | VIX 1 Day Impl.Move:2.03% | ||
| SpotGamma Imp. 5 Day Move: | 2.81% | 4128 (Monday Ref Px) | Range: 4013.0 | 4245.0 | ||
| SpotGamma Gamma Index™: | -1.40 | -1.43 | -0.33 | -0.01 | -0.11 |
| Volatility Trigger™: | 4400 | 4400 | 432 | 14000 | 339 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 420 | 14050 | 300 |
| Gamma Notional(MM): | -691.0 | -671.9 | -1496.0 | -2.0 | -645.0 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4494 | 4527 | 0 | 0 | 0 |
| Put Wall Support: | 4000 | 4000 | 400 | 13000 | 300 |
| Call Wall Strike: | 4700 | 4700 | 450 | 14050 | 360 |
| CP Gam Tilt: | 0.61 | 0.59 | 0.45 | 0.82 | 0.56 |
| Delta Neutral Px: | 4376 | ||||
| Net Delta(MM): | $1,727,940 | $1,636,709 | $175,734 | $40,714 | $105,231 |
| 25D Risk Reversal | -0.1 | -0.09 | -0.08 | -0.08 | -0.08 |
| Call Volume | 514,914 | 416,873 | 1,924,960 | 3,736 | 909,664 |
| Put Volume | 1,119,882 | 1,051,456 | 2,883,696 | 3,301 | 1,198,883 |
| Call Open Interest | 5,319,810 | 5,146,977 | 5,908,605 | 48,890 | 3,899,902 |
| Put Open Interest | 9,348,848 | 9,001,025 | 10,145,675 | 48,981 | 6,181,186 |
| 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): [4101.0, 4201.0, 4051.0, 4151.0, 4251.0] |
| SPY Combo: [409.09, 419.04, 404.12, 414.07, 424.01] |
| NDX Combo: [12723.0, 13141.0, 13337.0] |
