Futures are near 4025 after an overnight range of 4006 to 4040. 4010 (SPY410) to 4000 is the major, structural support level in play for today. Light resistance rests at 4050 & 4075. Major resistance is at 4100 (Vol Trigger). 300 is the key downside level in the QQQ, with 310 to the upside.
Futures are currently down ~4% from Powell’s speech on Friday. As we discussed in our note last week, a sharp move lower off of Jackson Hole could ignite a rather vicious downside move, which could spark a feedback loop which could extend into Sep OPEX.
Put values, and associated hedges, will change rapidly as both the underlying price and IV swing around. As Sep OPEX is a very large quarterly OPEX, its unlikely that many of the large puts tied to that expiration will be closed prior OPEX. This is why we maintain our view that markets will hold elevated levels of volatility until 9/16.
Turning to levels, 400/4000 is a monster level for the S&P, as shown below. This has been a major level for most of 2022, and should remain so into Sep 16th OPEX. The thing to note above this level is that it holds not only sizeable puts (depicted by negative bars, below) but also calls (positive bars). We think this adds to the support at this level, in the short term, as it may reduce some of the put exposure and related downside hedging flows.
Where things get more murky is on a break of 4000. The Put Wall is down at 3900 and that is technically the bottom of our trading range. However, because 4000 is so large, we would anticipate it holding on into today. This 4000 level, we believe, is one that has to be “worn away”.
Whats interesting, is that below 4000 our models do not show much put exposure. This is inferred in the gamma curve below, wherein the curve flattens out below 4000 (red box). If there were large put positions at strikes <3900, the line would continue accruing negative gamma (y axis). Larger negative gamma levels are generally linked with higher volatility. The fact that the negative gamma tails off here implies dealers may have vol to supply, which contains the magnitude of downside movement (i.e. we don’t see “limit down” style moves).
While we highlight 4000 as the likely low for today, the key signals of increased put interest, and more downside ahead are:
- 1) higher IV levels (i.e. VIX)
- 2) Lower Vol Trigger (4100)
- 3) A shift lower of the Put Wall (3900)
Conversely, a close up above the 4100 Vol Trigger may indicate traders have digested the downside, and bulls regain the edge.
|SpotGamma Proprietary SPX Levels||Latest Data||SPX Previous||SPY||NDX||QQQ|
|SpotGamma Imp. 1 Day Move:
Est 1 StdDev Open to Close Range
|1.08%,||(±pts): 44.0||VIX 1 Day Impl. Move:1.61%|
|SpotGamma Imp. 5 Day Move:||2.85%||4058 (Monday Ref Px)||Range: 3943.0 | 4174.0|
|SpotGamma Gamma Index™:||-0.98||0.52||-0.33||0.02||-0.16|
|SpotGamma Absolute Gamma Strike:||4000||4000||400||12500||300|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||4159||4194||417.0||12386.0||329|
|Put Wall Support:||3900||4000||400||11000||300|
|Call Wall Strike:||4400||4300||420||13250||325|
|CP Gam Tilt:||0.76||0.68||0.55||1.1||0.49|
|Delta Neutral Px:||4116|
|25D Risk Reversal||-0.08||-0.06||-0.07||-0.07||-0.08|
|Call Open Interest||6,078,368||6,056,220||7,252,365||60,290||4,168,566|
|Put Open Interest||10,513,029||10,600,601||12,189,904||77,836||7,372,701|
|Key Support & Resistance Strikes:|
|SPX: [4150, 4100, 4000, 3900]|
|SPY: [420, 410, 400, 390]|
|QQQ: [315, 310, 300, 290]|
|NDX:[14000, 13250, 13000, 12500]|
|SPX Combo (strike, %ile): [4001.0, 4050.0, 3949.0, 4075.0, 4062.0]|
|SPY Combo: [399.64, 404.5, 394.37, 406.93, 405.72]|
|NDX Combo: [12303.0, 12706.0, 12504.0]|