Futures are holding near yesterdays close of 4070. With yesterdays push higher in markets, volatility estimates tick slightly lower: SG Implied move: 1.15%, VIX implied move: 1.72%. Resistance is in the 4100 – 4115(SPY 410 equivalent) area. Support shows at 4065 (Vol Trigger) then the 4015 (SPY 400) – 4000 area.
All eyes are on the 8:30AM ET PCE data. We remind everyone that in this environment we have very poor liquidity which is exacerbated by the upcoming holiday weekend (Monday US equity markets are closed). Thus prices may show excessive volatility.
Once again we saw a pickup in call positioning at strikes overhead. This is not something we’ve seen in some time, and as those calls fill in (and/or SPX rises) our volatility estimate should reduce, too. We consider this a bullish signal overall, we are a bit concerned this is a false breakout spurred by that lack of liquidity.
Today’s expiration is not particularly large, but we see about 20% of SPY gamma expiring, and this is heavily concentrated in the 400-410 range. We look for a test of one of those strikes today off of the PCE release.
The key thing to note here is that if markets break below 4000 we expect price velocity to increase due to an increase in negative gamma and a shift higher in IV. However, if we break higher we look for volatility to reduce, particularly if we test >=4200. This is because IV will decline further which burns up put values (vanna is a strong force here, but not as strong +3-4% in SPX).
The ironic thing about the markets threatening to breakout here is that its arguably the best time in some time to buy puts. To this point we’re starting to see a trend lower in our Risk Reversal[RR] metric. We’ve noted some very bullish readings in that metric lately (-0.05) which are usually only seen in call-heavy markets. Obviously this is/was a market dominated by puts, which made the “high” RR reading likely due to heavy put supply – after all the measure shows how put prices are relative to calls. We now see the metric slipping a bit lower (-0.07) which may signal that there is a bit of incremental put demand. This makes some sense given the rapid rise in the SPX this week (+3.4%).
Overall we’re looking for today’s close to set the trend and kickoff a new cycle. These cycles are feedback loops driven by increasing/decreasing IV and negative gamma. Both of these forces lead dealers to chase price as they hedge, which drives volatility (i.e. buying when market goes up, selling when market goes down).
A close >=4100 likely signals a continuation of the rally into next week, and we highlight that 4300 area as our max upside line into June FOMC/OPEX (6/15). A close down <=4000 suggests continued weakness for next week, with 3700 our major low into June OPEX.
And, again, we look for one of those levels (4000/4100) to be tested today.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4057 | 4059 | 405 | 12276 | 299 |
| SpotGamma Imp. 1 Day Move: Est 1 StdDev Open to Close Range |
1.15%, | (±pts): 47.0 | VIX 1 Day Impl. Move:1.72% | ||
| SpotGamma Imp. 5 Day Move: | 2.92% | 3901 (Monday Ref Px) | Range: 3787.0 | 4015.0 | ||
| SpotGamma Gamma Index™: | -1.06 | -1.3 | -0.11 | 0.01 | -0.05 |
| Volatility Trigger™: | 4065 | 4000 | 404 | 11775 | 298 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 400 | 11800 | 300 |
| Gamma Notional(MM): | -514.0 | -377.61 | -669.0 | 1.0 | -402.0 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4194 | 4165 | 0 | 0 | 0 |
| Put Wall Support: | 3700 | 3700 | 400 | 12000 | 290 |
| Call Wall Strike: | 4800 | 4500 | 408 | 11800 | 310 |
| CP Gam Tilt: | 0.73 | 0.8 | 0.76 | 1.08 | 0.74 |
| Delta Neutral Px: | 4241 | ||||
| Net Delta(MM): | $1,717,611 | $1,812,596 | $173,922 | $56,375 | $114,620 |
| 25D Risk Reversal | -0.07 | -0.07 | -0.07 | -0.08 | -0.08 |
| Call Volume | 506,109 | 407,361 | 2,330,977 | 10,219 | 1,089,719 |
| Put Volume | 824,173 | 711,614 | 3,502,214 | 7,463 | 1,260,744 |
| Call Open Interest | 5,829,190 | 5,871,950 | 6,931,645 | 61,836 | 4,810,522 |
| Put Open Interest | 10,559,462 | 10,398,301 | 11,057,970 | 59,512 | 7,029,948 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4200, 4100, 4000, 3900] |
| SPY: [410, 406, 405, 400] |
| QQQ: [310, 305, 300, 290] |
| NDX:[12500, 12025, 12000, 11800] |
| SPX Combo (strike, %ile): [4000.0, 3948.0] |
| SPY Combo: [399.69, 394.43] |
| NDX Combo: [] |
