Futures are down to 3882 which is up from overnight lows of 3850. Volatility estimates are set to remain high, with SG at 1.2% (open/close range) and the VIX pricing 2% SPX daily moves. Resistance shows at 3920 & 4000. Support shows at 3825.
We had opined that the VIX expiration likely pulled forward expiration “rally fuel” but looked for more support around the 4000 level. However, terrible retail reports from the likes of WMT (-15%) & TGT (-20%) and now CSCO (-10% premarket) signal “recession”, and that comes into an environment with increasing interest rates. This likely triggered both natural & forced liquidations.
As markets declined it was quite likely that options hedging flows sold, too, as large short dated put positions went from 2% out-of-the-money, to 2% in-the-money. The concentrated puts positions near 400SPY/4000SPX/300QQQ invoked “jump risk” as options rip higher in value. Shown here is the price of the 5/20exp 4000 strike put – note how its price shot higher as 9AM VIX settlement passed.
The question now comes to when the options flow will arrive as the dominant force. We noted above that it was likely dealers sold along with declining markets, but it appears that <3800 options dealers would reduce selling or even become buyers. This may offer some short term support particularly if traders roll put options down and out. Its key here that as puts are rolled down and out it slowly shifts support (aka the “dip”, red arrow) to the left.
Tomorrows Equity OPEX has also now become a more interesting factor here (vs y’days view) as the market decline has added a lot more delta weight. We believe its delta that signals the strength of post-OPEX rallies.
Shown below is the delta notional for SPX/SPY/QQQ and you can see there there is some good put delta size (teal bars) at the 5/20 expiration. This, we think, could provide a relief rally into Friday/Monday as short hedges are covered. Its worth flagging just how large that June expiration is – we’re marking that date as a significant event.
Finally we point back to this expiration map which has been tracking the synergies between April’s expiration and Mays. VIX exp seemed to lead to a decline in volatility that was released post-exp. Here we have a relatively large stock OPEX which may provide a bounce into an overall trend lower.
For this reason we think there is a real chance of markets recovering to the 4000 level into & around Fridays expiration. The lower we close into Friday, the stronger the OPEX bounce may be – but we see 4000 as significant resistance (its where most of 5/20 OPEX delta goes to 0).
As a final reminder (as we’ve stated for weeks), rallies should be framed as short covering and subject to quick and violent reversals. We very strongly believe that a major market low will come with a quarterly OPEX+FOMC combo.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 3921 | 3921 | 391 | 11930 | 291 |
| SpotGamma Imp. 1 Day Move: Est 1 StdDev Open to Close Range |
1.26%, | (±pts): 49.0 | VIX 1 Day Impl. Move:1.95% | ||
| SpotGamma Imp. 5 Day Move: | 2.94% | 4021 (Monday Ref Px) | Range: 3904.0 | 4140.0 | ||
| SpotGamma Gamma Index™: | -2.29 | -1.12 | -0.39 | -0.04 | -0.13 |
| Volatility Trigger™: | 4350 | 4160 | 470 | 13575 | 375 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 400 | 12000 | 300 |
| Gamma Notional(MM): | -1285.0 | -1233.02 | -1855.0 | -7.0 | -786.0 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4241 | 4306 | 0 | 0 | 0 |
| Put Wall Support: | 3900 | 4000 | 380 | 12500 | 300 |
| Call Wall Strike: | 4700 | 4700 | 480 | 14000 | 312 |
| CP Gam Tilt: | 0.45 | 0.41 | 0.41 | 0.5 | 0.49 |
| Delta Neutral Px: | 4289 | ||||
| Net Delta(MM): | $1,856,801 | $1,736,612 | $193,980 | $58,113 | $123,993 |
| 25D Risk Reversal | -0.08 | -0.06 | -0.09 | -0.11 | -0.11 |
| Call Volume | 517,155 | 468,819 | 2,051,916 | 7,933 | 894,526 |
| Put Volume | 1,148,489 | 786,413 | 2,835,324 | 10,556 | 1,240,263 |
| Call Open Interest | 5,967,319 | 5,999,227 | 7,370,696 | 70,074 | 5,144,950 |
| Put Open Interest | 10,968,838 | 10,701,933 | 11,064,087 | 68,709 | 7,063,352 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4050, 4000, 3900, 3700] |
| SPY: [400, 390, 385, 380] |
| QQQ: [300, 295, 290, 280] |
| NDX:[12500, 12200, 12100, 12000] |
| SPX Combo (strike, %ile): [3898.0, 3847.0, 3996.0, 3949.0, 3875.0] |
| SPY Combo: [389.56, 384.46, 399.36, 394.65, 387.21] |
| NDX Combo: [11883.0, 11680.0] |
