Futures are up sharply to 4150. We look for a max move of 1.07% today, which lines up with big resistance at 4200 and large support at 4100. The key level inside of that range is 4150-4160(SPY 415).
We see little reason for the S&P to move out of the 4100-4200 range that was prominent last week. The 310 Call Wall in QQQ is also a resistance level to watch – note this line is being tested pre-market. Liquidity should improve this week, which should help to reduce volatility.
The bulk of call activity overhead continues in the 4150-4200. There remains very light positioning at strikes >4200 which has created an interesting kink in the gamma curve (below). This kink is caused by a lack of change in gamma as S&P prices increase, which is what tells us there are few call positions above. Recall that our HIRO system has been signaling that large negative delta activity (call selling/put buying) occurs when the S&P breaks 4150. This helps to form interim 4200 resistance.
Bulls want to see the Call Wall (4200) roll to a higher strike here and/or positive deltas from HIRO, which indicates traders are anticipating higher prices. The top end of our trading range is determined by this Call Wall strike.
Equities are not the only important complex to watch here. We’ve been highlighting a lower-bound concept in the VIX, which stands in the 24-25 area. As you can see below there are hundreds of thousands of VIX puts at strikes from 26-19, with 24 being the “put-peak”.
You can see that this 25 VIX line was where the VIX decline paused, which seemed to hold irrespective of S&P prices. A 24 handle VIX (aka VIX “support”) would very likely sync with a test of 4200 (SPX resistance). To be clear this is positional analysis – not technical analysis.
A move into 24 likely doesn’t mean that VIX bounces violently higher, we just think it leads to a lower volatility-of-volatility (manifests like a VIX “pinning”).
We are over simplifying the IV dynamic above, whereas the more complex scenario lies in the ability for traders to continue shorting pre-FOMC vol while needing to likely own (or avoid shorting) post-FOMC vol. Below we’ve plotted the SPX skew of pre-FOMC expirations (6/13,6/14) and post-FOMC skew (6/15,6/17). You can see the vol premium due to the FOMC and we’d expect that gap to widen as we move toward next week. This dynamic is supportive of equities in the short term.
source: Interactive Brokers
The other, arguably most important data point is that of equity deltas. Below we’ve plotted SPX/SPY/QQQ delta by expiration, and you can see how prominent the 6/17 expiration is. This 6/17 OPEX remains put heavy, but these puts are decaying quickly both as a function of time but also higher S&P prices. This, in the short term, is also supportive of equities.
These twin dynamics of IV decline and put-decay (vanna/charm) make it a challenge to forecast outcomes out of next week’s FOMC/OPEX.
As noted above these puts are likely bringing supportive market flows, but that support can manifest either before expiration, or after.
If the market rallies into FOMC, particularly toward the 4300 line, that indicates that the fuel from put expiration (via dealer short hedge unwind) was pulled forward. This removes energy for a post-FOMC rally.
If the market is very weak into FOMC/OPEX (<4100), then we’d look for a rally after 6/17 expiration.
Therefore a directional edge may well emerge as we get closer to 6/15, but as of now we are looking for a test of either 4300 (big JPM collar strike at 4285) or 4000 (large OI) into month end. 4100-4200 remains key for this week.
|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:1.58%|
|SpotGamma Imp. 5 Day Move:||2.48%||4108 (Monday Ref Px)||Range: 4006.0 | 4210.0|
|SpotGamma Gamma Index™:||-0.73||-0.73||-0.16||0.01||-0.06|
|SpotGamma Absolute Gamma Strike:||4000||4000||400||11800||300|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||4183||4183||0||0||0|
|Put Wall Support:||4000||4000||400||12000||300|
|Call Wall Strike:||4200||4200||420||11800||310|
|CP Gam Tilt:||0.82||0.79||0.72||1.14||0.74|
|Delta Neutral Px:||4230|
|25D Risk Reversal||-0.07||-0.07||-0.06||-0.07||-0.08|
|Call Open Interest||5,989,352||5,989,352||6,833,802||66,109||4,603,162|
|Put Open Interest||10,653,458||10,653,458||11,083,555||63,456||6,976,320|
|Key Support & Resistance Strikes:|
|SPX: [4200, 4150, 4100, 4000]|
|SPY: [420, 415, 410, 400]|
|QQQ: [320, 310, 305, 300]|
|NDX:[13000, 12500, 12000, 11800]|
|SPX Combo (strike, %ile): [4001.0, 4051.0, 4199.0]|
|SPY Combo: [399.87, 404.79, 419.57]|
|NDX Combo: [12297.0, 12699.0]|