Futures are higher to 4140 ahead of this mornings 8:30AM ET CPI report. Call Walls have rolled higher, leaving key overhead resistance at 4150 & 4181. Support lies at 4100.
TL;DR for this week: 9/16 is now a call weighted exp as opposed to puts. Huge put positions were a key driver of the rally. These 9/16 puts have now drained off. Over 4200 the rally loses steam as dealers shift from expanding vol to suppressing vol. A bad CPI could easily invoke 4000 as those “drained puts” reawaken.
As the adage goes – its not the number, but the reaction to the number that matters. Options positioning is such that it will continue to support expanded volatility (i.e. bigger trading ranges), but this is most true to the downside.
First in regards to the downside. A “bad” CPI print spikes IV & invokes negative gamma that spools up into OPEX. 9/16 put positions still exist, and while they are near worthless now, their pricing is “jumpy” and still potentially dangerous. We don’t see this as a likely scenario, but see the risk.
In regards to the upside, as we mentioned yesterday, the put-fuel from this Fridays OPEX is mostly gone. Above 4100 marks the expiration being call-weighted rather than put-weighted. Short hedges tied to these positions have likely drained off. This is the “delta driver”.
What significant from the options positioning is implied volatility. IV is longer term compressing which crimps longer term equity tailwinds. This can be seen in the bullish -0.05 Risk Reversal readings. However, in the short term, if the CPI reading is seen as “pro markets” then we could see fast selling of short dated, “pre-Fed” IV. The idea here is that traders won’t likely want to sell vol tied to dates >9/21 FOMC, but any of these shorter dated expirations could get crushed. This is that fuel to “cheap shot” SPX up to 4300.
You’ll see an impression of this in the bottom plot of SPX term structure, below (red arrow). This is a premarket snapshot with extra-wide spreads (which makes that IV high a bit more extreme), but the clear point here is that IV is jacked up due to the impending CPI. However, there is also that event-vol which needs to hold for 9/21 FOMC. So its likely we end up with a kink in the curve wherein this <9/21 exp IV gets smashed and >9/21 exp IV holds up.
Whats also interesting here is the top plot, wherein the skew reads a bit like traders are short calls >4300 (green arrow). We’ve remarked recently that this was a market rally driven by put destruction (as opposed to call buying), and it seems that yesterday brought some call activity in the form of call selling. This leads us to see a relatively clear path to 4200 – but over that the dynamics really change from dealers buying futures on rallies, to selling. This leads to more solid overhead resistance.
This is implied in our vanna model, shown below. You can see how the model is tilting from a right skew to more neutral now. This suggests dealers are shifting from having to buy(sell) futures as markets rally(decline) to more of a “no nothing” stance. If we rally >4200 that model tilts to a left skew, which suggests dealers sell into rallies, and buy dips.
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4110 | 4104 | 410 | 12739 | 310 |
| SG Implied 1-Day Move:: | 1.0%, | (±pts): 41.0 | VIX 1 Day Impl. Move:1.52% | ||
| SG Implied 5-Day Move: | 2.92% | 4067 (Monday Ref Price) | Range: 3949.0 | 4186.0 | ||
| SpotGamma Gamma Index™: | 0.22 | -0.2 | -0.10 | 0.04 | -0.08 |
| Volatility Trigger™: | 4000 | 4000 | 411 | 12850 | 310 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 410 | 12500 | 300 |
| Gamma Notional(MM): | -29.0 | -54.0 | -525.0 | 5.0 | -555.0 |
| Put Wall: | 3900 | 3900 | 390 | 12850 | 300 |
| Call Wall : | 4300 | 4005 | 420 | 13250 | 330 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4101 | 4125 | 413.0 | 12437.0 | 336 |
| CP Gam Tilt: | 1.06 | 0.97 | 0.84 | 1.27 | 0.7 |
| Delta Neutral Px: | 4076 | ||||
| Net Delta(MM): | $1,929,031 | $1,721,982 | $198,891 | $58,037 | $107,062 |
| 25D Risk Reversal | -0.05 | -0.06 | -0.05 | -0.05 | -0.06 |
| Call Volume | 512,821 | 518,315 | 1,841,091 | 8,465 | 909,863 |
| Put Volume | 1,087,858 | 868,256 | 2,626,760 | 8,923 | 1,078,689 |
| Call Open Interest | 6,626,714 | 6,141,092 | 7,564,582 | 74,522 | 4,709,448 |
| Put Open Interest | 11,484,523 | 11,221,102 | 13,079,655 | 86,385 | 7,607,510 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4200, 4150, 4100, 4000] |
| SPY: [420, 415, 410, 400] |
| QQQ: [320, 315, 310, 300] |
| NDX:[13250, 12700, 12500, 12000] |
| SPX Combo (strike, %ile): [(4201.0, 93.86), (4181.0, 72.08), (4152.0, 92.78), (4099.0, 79.65), (4004.0, 87.22), (4000.0, 94.43)] |
| SPY Combo: [399.87, 420.01, 415.08, 400.28, 409.74] |
| NDX Combo: [12995.0] |
