Futures are higher to 4105. We note resistance at 4110 (SPY 410 Call Wall) then 4150. Support shows at 4060 (SPY 405) to 4060. We look for volatility to contract today, with an estimated max move of 1%.
ES futures are now up 5.5% from Wednesdays low into this morning. Markets will heavily focus on tomorrow’s CPI print, which may cap upside risk for today. We do not think traders want to be short volatility before that 9/13 8:30AM ET data point.
Call volumes were fairly impressive on Friday, and a material amount of SPY calls were rolled from ~400 to ~410. With that, the SPX Call Wall has held fast at 4005, but the SPY Call Wall did shift to 410. If the S&P holds <4100 it removes our overbought condition.
SPY seems to more accurately reflect current options positioning. The SPX Call Wall is unique, as the 4005 JPM collar call is causing a “pinning” of that Call Wall data point. This is because that odd 4005 strike is pure call gamma, whereas the 4100 strike now has larger call positions but is netting out with puts that are also at that strike.
The net of all this is that we see the options positions syncing with the market move back above the 4000 Vol Trigger, which signals a bullish stance from our models. 4100 is the top of our range, with 4000 functioning as large support.
Our view is that the velocity of this move higher was tied to the pulling-forward of 9/16 put deltas. Below is a chart of SPX/SPY/NDX/QQQ combined deltas, and what you can see is that call deltas (navy) are now larger than put deltas (teal) for 9/16. At the start of last week this was the polar opposite – put deltas were substantially larger.
Below is that delta estimate from 9/2, and what you may note is that call deltas have not changed – but the put delta position has declined by over half, from ~$900bn in put delta to ~$300bn (remember this is SPX/SPY/QQQ/NDX combined values).
As many of you know, we believe that when put values decline it results in dealers buying futures (dealers are short puts, hedged with short futures). That ~$600bn change in total put deltas informs us that dealers likely had a lot of futures to buy.
The other curious point here is that despite a 5.5% rally in the markets there was little to no change in call deltas. Through this lens, this rally was completely driven by put smashing. As a result this rally is inherently unstable and could reverse violently into 9/16.
Further, what this served to do is pull-forward the OPEX rally. Generally we look for big market rallies after large, put-heavy expirations. It appears this rally jumped that rally move.
A clean CPI print may keep markets buoyed, but the power of OPEX, we believe, is sharply reduced at these 4100 price levels. Those puts still exist in through Friday, and so a slide lower in markets suddenly evokes the need for dealers to short futures.
As a result, we think the risk reward here of being long is pretty poor. After 9/16 OPEX, 9/21 FOMC + VIX expiration the picture should become much more clear (and stable).
For those interested, we discussed these views in longer form on The MarketHuddle this past Friday.
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4067 | 4068 | 406 | 12588 | 307 |
| SG Implied 1-Day Move:: | 0.99%, | (±pts): 40.0 | VIX 1 Day Impl. Move:1.44% | ||
| SG Implied 5-Day Move: | 2.92% | 4067 (Monday Ref Price) | Range: 3949.0 | 4186.0 | ||
| SpotGamma Gamma Index™: | -0.19 | -0.44 | -0.15 | 0.01 | -0.10 |
| Volatility Trigger™: | 4000 | 4000 | 401 | 12375 | 304 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 400 | 12500 | 300 |
| Gamma Notional(MM): | -280.0 | -26.0 | -879.0 | 1.0 | -683.0 |
| Put Wall: | 3900 | 3900 | 390 | 12000 | 290 |
| Call Wall : | 4005 | 4005 | 410 | 13250 | 311 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4106 | 4046 | 412.0 | 12463.0 | 324 |
| CP Gam Tilt: | 0.95 | 1.01 | 0.75 | 1.06 | 0.65 |
| Delta Neutral Px: | 4095 | ||||
| Net Delta(MM): | $1,706,601 | $1,860,240 | $194,075 | $59,389 | $111,011 |
| 25D Risk Reversal | -0.06 | -0.05 | -0.05 | -0.07 | -0.07 |
| Call Volume | 518,315 | 490,148 | 1,748,963 | 9,601 | 695,950 |
| Put Volume | 868,256 | 708,010 | 3,125,022 | 10,656 | 1,175,242 |
| Call Open Interest | 6,141,092 | 6,493,135 | 7,409,534 | 70,207 | 4,573,300 |
| Put Open Interest | 11,221,102 | 11,207,660 | 12,952,596 | 88,499 | 7,729,308 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4150, 4100, 4050, 4000] |
| SPY: [410, 405, 400, 390] |
| QQQ: [310, 305, 300, 290] |
| NDX:[13250, 13000, 12500, 12000] |
| SPX Combo (strike, %ile): [(4149.0, 89.76), (4100.0, 83.4), (4007.0, 91.08), (4003.0, 72.91), (3998.0, 84.54), (3950.0, 90.55)] |
| SPY Combo: [400.5, 394.81, 414.73, 399.69, 409.85] |
| NDX Combo: [12299.0] |
