Futures are steady near 3960. Major, long term resistance remains at 4000, with first support at 3950. Larger support shows from 3910 (Vol Trigger, SPY 390) – 3900. Our forecast was for volatility to decline while markets are >3900, and we anticipate that trend continuing into tomorrow.
4000 is the critical level for the S&P as it markets a definitive transition from put-controlled markets, to call-controlled markets. We’ve not discussed our vanna models (shown below) in some time as they have been locked in a sharply left-skewed position (i.e. red line going from top left to lower right), which suggests high, put-driven volatility.
As this model becomes more neutral (i.e red dashed line flat) it’s a signal of this put->call transition. Again, we think this happens if markets breach 4000. The implication of this is that hedging flows have more to do with call positions (which generally carry lower IV), than puts. This is a sign that call positions are building, and volatility should trend lower.
The shift higher in both SPX/SPY & QQQ Call Wall(s) was the most notable data change from yesterday. We consider this a bullish indicator, as it suggests call gamma is building at strikes overhead.
In this case, the call positions are setting up over the large Absolute Gamma strikes at 400/4000 SPY/SPX and 300 QQQ. The Call Wall > Absolute Gamma Strike is generally a bullish indicator, and if markets get above these Absolute Gamma Strikes, particularly post-FOMC, it could be a signal for a sharp, extended rally.
Our view is that this move is likely not in play until after the FOMC, as implied volatility shifts from a market tailwind, to headwind (discussed at length yesterday).
In regards to a larger, extended market rally we are looking for 3 things:
- Markets > Absolute Gamma Strike(s). 4000 for SPX, 300 for QQQ
- Call positions to fill in over head, which would show as increases in gamma here, vanna shifting to a right-skew, and call IVlifting
- A decline in the MOVE Index, which suggests bond volatility coming down (see here)
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 3959 | 3965 | 394 | 12439 | 303 |
| SpotGamma Imp. 1 Day Move: Est 1 StdDev Open to Close Range |
1.24%, | (±pts): 49.0 | VIX 1 Day Impl. Move:1.5% | ||
| SpotGamma Imp. 5 Day Move: | 3.05% | 3861 (Monday Ref Px) | Range: 3744.0 | 3979.0 | ||
| SpotGamma Gamma Index™: | 0.10 | 0.08 | -0.07 | 0.02 | -0.01 |
| Volatility Trigger™: | 3910 | 3910 | 395 | 11750 | 299 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 400 | 12500 | 300 |
| Gamma Notional(MM): | -60.0 | 49.68 | -411.0 | 3.0 | -134.0 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 3970 | 3947 | 0 | 0 | 0 |
| Put Wall Support: | 3700 | 3700 | 370 | 11500 | 280 |
| Call Wall Strike: | 4050 | 3950 | 400 | 11925 | 310 |
| CP Gam Tilt: | 1.03 | 1.03 | 0.84 | 1.29 | 0.9 |
| Delta Neutral Px: | 3986 | ||||
| Net Delta(MM): | $1,497,494 | $1,476,886 | $163,348 | $51,862 | $97,521 |
| 25D Risk Reversal | -0.05 | -0.06 | -0.05 | -0.06 | -0.05 |
| Call Volume | 480,225 | 574,841 | 2,055,475 | 8,313 | 1,014,959 |
| Put Volume | 871,831 | 801,998 | 2,812,391 | 10,362 | 1,236,544 |
| Call Open Interest | 5,535,683 | 5,495,352 | 6,756,614 | 57,159 | 4,032,451 |
| Put Open Interest | 9,476,045 | 9,280,354 | 11,119,053 | 54,820 | 6,283,520 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4100, 4000, 3900, 3800] |
| SPY: [400, 395, 392, 390] |
| QQQ: [310, 305, 300, 290] |
| NDX:[14000, 13000, 12500, 11925] |
| SPX Combo (strike, %ile): [4050.0, 3999.0, 4003.0, 3948.0, 4011.0] |
| SPY Combo: [403.85, 398.72, 399.11, 393.59, 399.9] |
| NDX Combo: [12726.0, 12527.0] |
