- Rallies into June OPEX should be categorized as “short covering” and subject to failure.
- Mark June 17th (options exp. OPEX) as a key turning point due to a very large expiration.
- Updated OPEX playbook here.
- $3850 heavy resistance into 6/17 close
- The $3600 JPM 6/30 short put strike is our major downside support into June 30th.
- The $4285 JPM 6/30 long put strike is our major upside level into June 30th.
Futures have dropped sharply to 3710, with no clear trigger. With this decline we expect volatility to continue, with 3700 (Put Wall) as initial support. Below there we highlight 3620 as the next major level. To the upside we note 3800 as resistance.
With large puts still positioned for tomorrows OPEX, volatility expands as markets decline. This relationship is made very clear through the SIV model. As these large puts expire tomorrow we should see an initial reduction in volatility for next week, due to the decline in put positions.
The big thing of note here for today is that our key gamma levels have shifted sharply lower, lead by the Vol Trigger 4285->4000. What seems to have formed is a build up of call positions in the 3800-4000 area, combined with some closing ATM puts. You can see this positioning appear as a strange kink in the gamma curve as shown below, and this is what drives our Vol Trigger lower. Additionally this “kink” suggests that if we do stage another rally into tomorrow that the 3850 area is resistance.
To this point “the kink” is where yesterdays very sharp rally died. Its really quite interesting that this 3850 level is where we also saw very heavy call selling (orange) in HIRO, after a tranche of put sales (blue) helped juice the initial rally.
Clearly the question now is about downside exposure, and will be be getting an extended OPEX relief rally. Yesterday we posted this chart and discussed the path depended outcome, which is still in play.
The size of the put position expiring tomorrow is still very large, as shown below. In fact, we believe this size rivals that of March ’20. The key difference here is that in March of ’20 we had a Fed looking to ease, while here its the exact opposite.
And, yes, while many of these put positions could be paired off with other offsetting positions (i.e. netting out some of this delta), we remain of the opinion that a lot of these put positions are investor short hedges which will be rolled out and down on OPEX.
This means that large ITM puts will be exchange for OTM puts, which creates a short delta hedge imbalance for dealers (i.e. they need to cover short futures). This is what may drive the OPEX-related rally.
The very tricky part here is that, until puts are closed, they are going to drive a lot of volatility over the next two days. If the macro community wants to sell today after digesting Powell, then these OPEX positions will excite that selling until they expire, and a tag of 3600 is easily in the cards. In that scenario we would still be looking for a rally on Tuesday of next week.
Conversely if the market opens somewhat flattish here, volatility could quickly come for sale and these puts would lose a lot of value, and quickly. 3850 into tomorrows close is achievable if we spark that vanna/charm feedback loop off of the open.
Highlighting how these puts are a major driver of volatility is the value of the 3700 put expiring tomorrow. It traded from$40 at the open, down to $6 near the close. Today its back to $35 which is a notional swing of around $100mm. There are roughly 1.5 million ITM puts >=3700 in just SPX, not to mention SPY/QQQ and single stocks.
|SpotGamma Proprietary SPX Levels||Latest Data||SPX Previous||SPY||NDX||QQQ|
|SpotGamma Imp. 1 Day Move:
Est 1 StdDev Open to Close Range
|1.23%,||(±pts): 47.0||VIX 1 Day Impl. Move:1.85%|
|SpotGamma Imp. 5 Day Move:||2.49%||3900 (Monday Ref Px)||Range: 3803.0 | 3997.0|
|SpotGamma Gamma Index™:||-1.80||-2.39||-0.35||0.02||-0.12|
|SpotGamma Absolute Gamma Strike:||4000||4000||380||11800||300|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||4098||4188||0||0||0|
|Put Wall Support:||3700||3700||370||11325||280|
|Call Wall Strike:||4200||4700||387||11800||310|
|CP Gam Tilt:||0.51||0.49||0.45||1.11||0.5|
|Delta Neutral Px:||4143|
|25D Risk Reversal||-0.04||-0.06||-0.06||-0.06||-0.07|
|Call Open Interest||6,950,616||6,813,242||8,007,095||78,364||5,355,605|
|Put Open Interest||11,242,057||11,366,294||12,122,994||75,977||7,649,778|
|Key Support & Resistance Strikes:|
|SPX: [4000, 3900, 3800, 3700]|
|SPY: [400, 385, 380, 370]|
|QQQ: [300, 290, 285, 280]|
|NDX:[12500, 12000, 11800, 11500]|
|SPX Combo (strike, %ile): [3755.0, 3853.0, 3702.0, 3804.0, 3778.0]|
|SPY Combo: [375.72, 385.58, 370.41, 380.65, 377.99]|
|NDX Combo: [11802.0, 11478.0, 11269.0, 11884.0, 11687.0]|