Macro Theme:
- A break of $4,200 invokes our “lower bound” concept
- We see substantial, longer-term support at $4,050 due to large open interest at $4,000.
- A break of $4,000 invokes “capitulation” risk
- 5/20 is a critical date for markets due to a large expiration
Daily Note:
Futures have recovered to 4020 from overnight lows of 3961. We look for volatility to remain elevated, as the SG implied move remains 1.2% with the VIX Implied move 2.2%. Resistance is at 4125 then 4200. Support is at 4000 then 3969.
The futures decline and recovery overnight seemed highly correlated to the “stablecoin” UST breaking overnight (for more on that go here). This occurred during arguably the “least liquid” window for ES, and so we do not read much into the overnight swoon.
It was clear that traders monetized puts yesterday, as we saw puts net closed at strikes >400/4000 (SPY/SPX). Some relatively chunky puts were then rolled down to strikes <390/3900. Overall though it seemed like remarkably light index/ETF put flow given the magnitude of the drawdown.
In fact our our HIRO delta reading from yesterday was quite positive, with QQQ flow registering essentially flat (aka no net end of day delta).
This seems to be syncing with the discussion around a lack of vol response relative to the index moves. It more or less seems like large traders hedged back in January, and have not had to reload, with the exception of some shifts near the March FOMC/OPEX. Therefore we are getting this persistent equity weakness via deleveraging/degrossing (i.e. long stock sales) and not from shorting/put buying. This is also suggested via our Delta Tilt indicator, which remains (and has held) near its lower bound.
On that note the tech/memes continue to get crushed. Note here the relative YTD performance of SPX (blue) vs NDX (orange), ARKK(yellow), MEME (teal). This suggests that while SPX is being dragged down, its relatively benefiting from diversification/quality.
The question then becomes “will the SPX join the swoon”? And for that we continue to mark the 4000 level. The updated snapshot of gamma by strike (calls = positive gamma bars, puts negative) shows this dearth of call positions <4000 which we think setups up “capitulation risk” if the S&P breaks below 4000.
We still give an edge to 4000 holding for now, and we highlight the risk of a right tail move here. Vol is obviously quite high, and the slight unwinding of which could create an explosive rally >4200. And while the VIX remains somewhat contained, very short dated (i.e. this weeks) vol is quite high as shown below. These options require a lot of movement to maintain that IV level, and a lack of vol will start to generate an equity tailwind (via vanna/charm).
While we do not offer trading advice, we would remind traders looking to play upside that strike selection is critical here as call options can be hurt by declining IV.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 3993 | 3993 | 398 | 12187 | 297 |
| SpotGamma Imp. 1 Day Move: Est 1 StdDev Open to Close Range |
1.27%, | (±pts): 51.0 | VIX 1 Day Impl. Move:2.2% | ||
| SpotGamma Imp. 5 Day Move: | 2.99% | 4123 (Monday Ref Px) | Range: 4000.0 | 4247.0 | ||
| SpotGamma Gamma Index™: | -2.00 | -2.0 | -0.35 | -0.02 | -0.11 |
| Volatility Trigger™: | 4300 | 4300 | 422 | 13200 | 320 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 400 | 14050 | 300 |
| Gamma Notional(MM): | -986.0 | -986.3 | -1637.0 | -3.0 | -680.0 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4319 | 4319 | 0 | 0 | 0 |
| Put Wall Support: | 4000 | 4000 | 400 | 12000 | 300 |
| Call Wall Strike: | 4700 | 4700 | 450 | 14050 | 330 |
| CP Gam Tilt: | 0.46 | 0.46 | 0.4 | 0.62 | 0.48 |
| Delta Neutral Px: | 4269 | ||||
| Net Delta(MM): | $1,658,812 | $1,658,812 | $181,018 | $38,254 | $101,410 |
| 25D Risk Reversal | -0.08 | -0.08 | -0.06 | -0.07 | -0.08 |
| Call Volume | 525,968 | 525,968 | 2,181,617 | 25,492 | 1,163,515 |
| Put Volume | 921,538 | 921,538 | 3,017,913 | 12,959 | 1,433,128 |
| Call Open Interest | 5,522,413 | 5,522,413 | 6,806,800 | 57,154 | 4,534,213 |
| Put Open Interest | 9,602,094 | 9,602,094 | 9,910,482 | 46,908 | 5,776,406 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4300, 4200, 4100, 4000] |
| SPY: [410, 400, 390, 380] |
| QQQ: [320, 310, 300, 290] |
| NDX:[14050, 14000, 13000, 12000] |
| SPX Combo (strike, %ile): [4001.0, 3901.0, 4101.0, 3953.0, 4053.0] |
| SPY Combo: [398.97, 389.01, 408.92, 394.19, 404.14] |
| NDX Combo: [12310.0, 11895.0, 12505.0, 12102.0] |
