Futures have pulled back to 4128, down from yesterdays highs of 4202. The shift over 4100 has brought a reduction to volatility estimates, with the SG Implied move now at 1.07% (from ~1.2% the last several sessions). We look for resistance at 4135 (Vol Trigger) then 4150, 4200. Support lines up at 4115 (SPY 410) to 4100. Below there is a gap to 4000.
Per the CME liquidity tool we are seeing a slight pick up in ES liquidity (shown below), but it’s likely that many traders are still on vacation. Price movements can be often be exaggerated in these environments – we think this was a big reason that the S&P was able to pull off a 6% rally last week. We think this mornings ES pullback is some much needed consolidation.
Strangely, last weeks rally did not appear to be supported by material call buying (blue line) as shown in the OCC data. There was also a very sharp drop in put purchases (yellow, red, brown lines). This sudden decline in put demand likely gave call buying a bit more strength on a net basis, but the point here is that there was not a profound grab for upside positions (despite the huge rally).
However we’d note the crush in IV plus large negative gamma position likely provided a strong market tailwind. Recall we frame this flow as short covering.
What Fridays expiration did bring was small net closing of calls <=415SPY/4150SPX, with rolling to strikes higher. 420/4200 was the biggest recipient of the roll and this activity is what led to a reduction in our volatility estimates. This also lines up 420/4200 to be a resistance point for the next several sessions.
There was also a pickup some chunky put activity which helps to add to support below. Into June OPEX, 4000 should offer some strong support if the market does break lower. We suspect that it would take several sessions for the market to reach that mark due to positions filling in/around 4100. This is in conjunction with our volatility estimate winding lower.
Overall we remain suspect that the market can squeeze all that much higher over the next 2 weeks, due to a few factors. The forces of negative gamma & vanna reduced sharply last week, and “tap out” on a move over 4200. Large traders are quite likely to hold downside protection into 6/15 which keeps some bid in IV, particularly as we approach 6/15. It seems like we are starting to form a larger range of 4000 to 4200 for 6/15.
We do think that more nimble term traders are likely going to sell short dated IV (i.e. expirations <6/15) on any IV spike/market decline. This could provide some supportive flows, and may further help to reduce volatility.
On the point of volatility, we are in an interesting spot here. Realized volatility is up near 33 with the VIX careening to 25 on Fridays close (currently 27). There are very large 6/15 VIX expiration put positions <=27, and traders again are likely to want to be long vol into the FOMC. We see all this washing out to the VIX swinging in the 25-30 range into 6/15.
|SpotGamma Proprietary Levels||Latest Data||Previous||SPY||NDX||QQQ|
|SpotGamma Imp. 1 Day Move:
Est 1 StdDev Open to Close Range
|1.07%,||(±pts): 44.0||VIX 1 Day Impl. Move:1.67%|
|SpotGamma Imp. 5 Day Move:||2.87%||4158 (Monday Ref Px)||Range: 4039.0 | 4278.0|
|SpotGamma Gamma Index™:||-0.23||-0.23||-0.06||0.01||-0.03|
|SpotGamma Absolute Gamma Strike:||4000||4000||420||11800||300|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||4203||4203||0||0||0|
|Put Wall Support:||4000||4000||400||12000||300|
|Call Wall Strike:||4200||4200||420||11800||310|
|CP Gam Tilt:||0.94||0.88||0.89||1.18||0.89|
|Delta Neutral Px:||4218|
|25D Risk Reversal||-0.06||-0.06||-0.06||-0.07||-0.07|
|Call Open Interest||6,006,863||6,006,863||6,811,614||64,423||4,680,060|
|Put Open Interest||10,489,006||10,489,006||10,683,606||60,526||6,660,393|
|Key Support & Resistance Strikes:|
|SPX: [4300, 4200, 4100, 4000]|
|SPY: [430, 420, 410, 400]|
|QQQ: [320, 310, 305, 300]|
|NDX:[13500, 12500, 12000, 11800]|
|SPX Combo (strike, %ile): [(4225.0, 81.23), (4200.0, 87.18), (4150.0, 81.53)]|
|SPY Combo: [419.41, 414.43, 421.9]|
|NDX Combo: [12313.0, 12719.0]|