Futures are at 3990, with a 4117/3980 range overnight. Resistance remains at 4000-4010 (SPY 400), then 4050. Support lies at 3960 (SPY 395) – 3950.
Elevated volatility is certainly the key feature of current markets. It appears from our open interest data that traders took advantage of this vol to net close puts >4000, and rolled them <4000. This shifts the Put Wall back down to 3900, which is now the bottom of our range.
400/4000 is still the dominant options strike, and price action continues to suggest this a level which needs to be “worn away”, rather than broken. It may be that markets need some type of catalyst to spark a pickup in put buying/higher IV to break the pull of this large strike.
Overall there remains little signal of major put demand. Various skew/IV measures seem fairly contained despite the ~5% decline over the last 3 sessions. This can be seen in our Risk Reversal metric of -0.07 (-0.1 is a bearish measure), and other basic metrics like VVIX (below).
Essentially traders still see no reason to run into OTM puts (or VIX calls). We discussed this dynamic last week, and see little reason for it to change. However, if put demand sparks, that would likely be a force to drive markets materially lower.
This lack of long put demand is unlikely to translate into traders selling IV, particularly before Fridays jobs report. This is particularly true given that realized volatility has stabilized at levels which are quite historically high. This is seen in the 1 month SPX realized vol plot shown below, and the implication here remains that elevated RV demands higher IV. We see no reason for volatility(both RV & IV) to materially decrease until markets have a clear understanding as to the future path of interest rates.
We continue to see 4000-4100 as a “neutral zone”. Feedback loops exist above/below this range. Above 4100 we see positive gamma pickup, which helps to stabilize markets and reduce volatility. Below 4000 its the opposite, with negative gamma increasing and higher IV. Traders are now watching that Friday jobs report, which could determine the next directional leg into Sep OPEX.
|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): 43.0||VIX 1 Day Impl. Move:1.66%|
|SpotGamma Imp. 5 Day Move:||2.85%||4058 (Monday Ref Px)||Range: 3943.0 | 4174.0|
|SpotGamma Gamma Index™:||-1.25||-1.02||-0.39||0.00||-0.17|
|SpotGamma Absolute Gamma Strike:||4000||4000||400||12500||300|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||4116||4137||412.0||12312.0||325|
|Put Wall Support:||3900||4000||390||11000||300|
|Call Wall Strike:||4400||4400||420||13250||325|
|CP Gam Tilt:||0.71||0.62||0.52||0.99||0.46|
|Delta Neutral Px:||4104|
|25D Risk Reversal||-0.07||-0.07||-0.07||-0.07||-0.07|
|Call Open Interest||6,229,560||6,142,160||7,607,891||62,717||4,415,296|
|Put Open Interest||10,759,296||10,546,233||12,523,530||75,427||7,573,717|
|Key Support & Resistance Strikes:|
|SPX: [4100, 4000, 3900, 3800]|
|SPY: [410, 400, 395, 390]|
|QQQ: [310, 305, 300, 290]|
|NDX:[13250, 13000, 12500, 12000]|
|SPX Combo (strike, %ile): [3898.0, 3950.0, 3998.0, 4006.0, 3902.0]|
|SPY Combo: [389.45, 394.63, 399.4, 400.2, 389.85]|
|NDX Combo: [12306.0, 12096.0, 12133.0, 12219.0, 12503.0]|