Futures are up slightly to 3950. Resistance is at 4000, with a pivot at 3950 and support at 3900. 4000 is the key level into Friday OPEX. We currently do not see the market poised to push under 3900.
The speed and magnitude of yesterdays decline made complete sense to us, and hopefully for you all too. We had been warning of the instability of this market due to OPEX dynamics, and we firmly believe that the violent reaction to yesterdays hot CPI was exacerbated by these options positions.
Through our lens, the move that arguably made less sense was the +5.5% rally the previous few sessions. Yesterdays move simply unwound that excess, bringing markets right back to the massive options level of 4000.
And, once again, despite the biggest move down in markets since March ’20 vol seemed unimpressed. Our Risk Reversal metric closed at -.06 which shows little demand for puts vs calls. Further, yesterday was the “only time in history that SPX fell by more than 4% and VIX was not above 30” (h/t @alpha_ex).
There is, of course, nothing new to this “lack of vol” dynamic (see here). It is however surprising that yesterday brought little to no change in that dynamic. It will be hard for markets to accelerate further to the downside without IV breaking higher. For this reason we continue to believe that put buyers should focus on higher delta ATM put options, rather betting on OTM puts which rely on convexity for a payoff.
Looking forward, what yesterdays decline did was re-energize those 9/16 OPEX puts. This keeps markets jumpy in through Friday, but more interestingly may provide some bounce fuel to start next week. Fridays OPEX is now back to a put-weighted (total put delta by expiration in teal) OPEX from yesterdays call-weighted (navy) stance (previous chart here). All else equal, the decay of those puts now provides further support for markets.
Ultimately we favor reversion back into the 4000 level for Friday. We will continue to get some wide swings/high volatility, however the Put Wall has not shifted for some time, and IV indicates little demand for more downside protection. As a result, we think further downside may be limited into Friday.
|SpotGamma Proprietary SPX Levels||Latest Data||SPX Previous||SPY||NDX||QQQ|
|SG Implied 1-Day Move::||0.97%,||(±pts): 38.0||VIX 1 Day Impl. Move:1.71%|
|SG Implied 5-Day Move:||2.92%||4067 (Monday Ref Price)||Range: 3949.0 | 4186.0|
|SpotGamma Gamma Index™:||-1.53||0.2||-0.45||-0.02||-0.19|
|SpotGamma Absolute Gamma Strike:||4000||4000||390||12000||300|
|Gamma Notional(MM):||-833.0||(-913, 0)||-2164.0||-2.0||-1182.0|
|Call Wall :||4005||4300||420||12500||315|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||4074||4104||410.0||12477.0||325|
|CP Gam Tilt:||0.7||0.64||0.5||0.89||0.47|
|Delta Neutral Px:||3989|
|25D Risk Reversal||-0.06||-0.05||-0.05||-0.06||-0.07|
|Call Open Interest||6,739,343||6,626,714||8,055,857||75,707||4,979,773|
|Put Open Interest||11,002,718||11,484,523||13,549,879||81,757||7,525,764|
|Key Support & Resistance Strikes:|
|SPX: [4000, 3950, 3900, 3800]|
|SPY: [400, 395, 390, 385]|
|QQQ: [300, 295, 290, 285]|
|NDX:[13000, 12700, 12500, 12000]|
|SPX Combo (strike, %ile): [(4003.0, 88.43), (4000.0, 95.87), (3948.0, 98.03), (3941.0, 76.24), (3925.0, 79.7), (3921.0, 73.88), (3901.0, 99.53), (3874.0, 82.71), (3850.0, 96.66), (3827.0, 81.12)]|
|SPY Combo: [389.96, 394.67, 384.84, 399.78, 400.18]|
|NDX Combo: [11877.0, 12286.0, 12082.0, 12214.0, 11998.0]|