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Informe SG Levels

Ago 3, 2022 | SG Levels | 0 Comentarios

Market Context: 

  • Markets are attempting to maintain a bullish, positive gamma position while digesting large stock gains from the past several weeks.
  • Absent a near-term catalyst (i.e. no OPEX or events) options positions need to build at or above current levels ($4,100.00) to maintain the rally.

S&P 500 Levels:

  • $4,200.00 is significant overhead resistance.
  • $4,100.00 is a pivot below which volatility should start to increase.
  • $4,000.00 is major support below which there may be an accelerated sell-off.

What To Watch:

  • While SPX > $4,000 / QQQ > $311 positive gamma is building, which should drive down implied volatility. This trend should continue into August’s monthly options expiration (OPEX). A break of $4,000 likely invokes negative gamma and higher implied volatility.
  • Watch 1-month realized volatility (ref: 19, 8/2/22) as a baseline for IV (i.e. VIX). If RV continues to decline it implies IV can drag lower, which is a market tailwind.

Daily Note:

Futures are trading near 4110 after a quiet overnight session. Support shows at 4100 then 4060. Resistance shows at 4120 (SPY 410) then 4162.

This is quite an interesting juncture here for markets. While we’ve felt that some consolidation was warranted, there is some deterioration in the bullish structure. That being said, bulls still have the edge while the S&P is above the Vol Trigger (4060), and large 4000 support.

The first concern is with rate volatility. As we flagged last night, the 2 year bond had a +1SD move yesterday, which brings its yield back to pre-FOMC levels. We can also see the MOVE index bouncing higher which suggests bond volatility is not declining. We’ve stated for months that high bond volatility is bearish for stocks (explainer here).

Next we are starting to see some signs of bottoming in the options implied volatility space. First our risk reversal metric has bounced off of -0.4 bullish highs to more moderate -0.08 levels. This suggests that put prices are picking up relative to calls.

We think there was heavy put selling over the last month, and so this metric may just be picking up a normalization in behavior after a +8% market rally (i.e. selling puts isn’t as attractive now).

Another look at IV pricing is offered by @Alpha_ex_llc wherein they note that VIX may be bottoming based on its relationship to 1 month realized volatility (grey line). If you are of the belief that sharply declining implied volatility (i.e. VIX) is a strong tailwind for equities, then this chart suggests that tailwind has turned to a breeze, at best.

This does not mean equities have to crash, we just believe that when IV is being sold it can present bullish positional flows that are often confused as macro catalysts (i.e. there is a huge put cover, not “cash getting put to work”).

This is the big question: can fundamental buyers now take the baton from positional flows? With a slight positive gamma foothold and IV zapped, the rally-fuel from options has largely discharged and so some other catalyst needs to enter.

SpotGamma Proprietary SPX Levels Latest Data SPX Previous SPY NDX QQQ
Ref Price: 4104 4104 408 12901 314
SpotGamma Imp. 1 Day Move:
Est 1 StdDev Open to Close Range
1.12%, (±pts): 50.0 VIX 1 Day Impl. Move:1.5%
SpotGamma Imp. 5 Day Move: 3.12% 4130 (Monday Ref Px) Range: 4002.0 | 4259.0
SpotGamma Gamma Index™: 0.23 0.45 -0.12 0.01 -0.02
Volatility Trigger™: 4060 4000 409 11750 313
SpotGamma Absolute Gamma Strike: 4000 4000 400 12500 310
Gamma Notional(MM): 30.0 32.52 -653.0 2.0 -147.0
Additional Key Levels Latest Data Previous SPY NDX QQQ
Zero Gamma Level: 4085 4085 0 0 0
Put Wall Support: 3900 3900 400 12500 290
Call Wall Strike: 4200 4200 415 11925 320
CP Gam Tilt: 1.07 1.02 0.8 1.18 0.9
Delta Neutral Px: 4070
Net Delta(MM): $1,592,561 $1,609,690 $190,750 $62,048 $100,931
25D Risk Reversal -0.08 -0.07 -0.07 -0.08 -0.08
Call Volume 382,334 375,034 2,374,628 7,108 815,911
Put Volume 726,177 793,173 3,571,263 6,152 1,252,312
Call Open Interest 5,650,688 5,610,587 7,173,294 61,207 4,089,017
Put Open Interest 10,101,458 9,898,369 12,550,110 64,164 6,866,743
Key Support & Resistance Strikes:
SPX: [4200, 4100, 4000, 3900]
SPY: [410, 405, 400, 390]
QQQ: [315, 310, 305, 300]
NDX:[14000, 13000, 12500, 11925]
SPX Combo (strike, %ile): [4162.0, 4216.0, 4113.0, 4019.0, 4023.0]
SPY Combo: [413.77, 419.08, 408.88, 399.49, 399.9]
NDX Combo: [13134.0, 12927.0]
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