VEXommentary - $SPY $ES
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SPY
Gamma Environment: Negative (-1.73Bn)
Key Gamma Levels:
27th
430 - R3 resistance
425 - R2 resistance
420 - R1 resistance
418 - S1 (First Support)
417 - S2 (Second Support)
415 - S3 (Third Support)
VOL Model - Upside likely 4240 30min+ (425)
Gamma Model - Upside likely (4220) > 4220
Order-flow Model - Upside likely > 4220
Macro Model - Downside likely
Seasonality Model - Less upside likely
Views:
* Positioning has now reverted back to 90th percentile typical gamma positioning during this time period, as a result we have noted that there is a risk to the downside. Following a marginal beat by MSFT and miss by GOOG. We can expect some potential downside. With the new MVEX VOLA model (soon to be released on the dashboard). We remain cautious at this juncture and express downside risk potential with a completely unexpected negative ER from GOOG’s cloud business we can expect that AMZN may produce similar effects.
* Based on macro conditions we do not expect natural buyers to exist and with more muted returns coming at the end of this we do not expect the major bounces seen today. We also note that the TLT has showed continuous strength whilst the market dumped, though this reversed and yields returned to their standard correlation.
* This was and remains a key indicator. Note the 10-yr (TNX) now continues to slow down which suggests that bonds are now being bought, question is. There is some short term noise with some recent export bans. We are also now approaching a point where bonds can attain positive real yields, a sign this isn’t bullish for equities, as a result flows into equities may lessen and move back into bonds.
* VIX levels based volatility range of +2%/-2%, Negative gamma environment volatility is likely to continue to be more volatile than the prior week given the switch up in positioning.
* SPY remains in deeper negative territory across the board (both short and long term) (now at $-1.73bn, down from -1.78bn) yesterday looking two months forward). This keeps us in a balance and a preferable criteria for a bounce would be a
2BN+ read. That being said, big tech remains in negative positioning as funds hedge and as a result, following the end of this ER week we can expect an unwind in this which could provide a bounce to be gamed. However given that current positioning that provided fuel for upside on big tech (-368m previously - a noted peak this year) and semis (note an extreme rally on NVDA) we are looking at some potential for reversion based on this as a result.
Is the hedge in place?
* The VIX has experienced a major rally and as a result we can say for sure that the hedges are very much in place and once again are now leading to a much greater increase in downside, however as we have learnt in several instances. Too many puts lead to…
* Call volumes +25% and put volumes +26% with puts REMAINING at ~1.5x the volume of calls, following a peak call/put volume disparities. Nearing call volume and put volume lows for the year which is expected given the easter weekend. This remains consistent with the balance day yesterday and so a peak up in this department on either side should begin to give direction.
* 10 Delta Put premiums (436C) vs call IV (at the 10 delta, 416P) is 1.1x in the short term and 1.1x across duration an IV basis, the skew here suggests that on the short term basis puts aren’t favourable. They do however remain more favourable beyond this week. Additionally this vol isn’t the highest read we have had thus far, with 2x presenting very strong risk reward. IV skew blows out below 425 and with the tails now currently offering an asymmetric return for those involved in the options market. Flows pushing lower should likely slow.
OrderFlow
For order flow perspective levels please see the levels provided in the chart. See these lines as “barriers” to overcome and if done then price can be “accepted” into areas where previous buyers (Navajo white = up volume) and sellers (purple = down volume) wanted to engage up until points where there are much greater levels of volume. These are areas that you can consider as greater points of resistance.
Calls/Puts Volume
Bull Scenario
Above 4240 (with continuous bid at 4250) (
ES) additional call buying to increase up the chain at further expiries and up the chain would be needed to continue this drive up. Note the skew toward call buying has lightened again but below we have a large delta of puts are set to unwind in two days which can give room to a bounce (not a small amount either). We need put buying in further duration to lower and call buyers to move higher. Continuous exhaustion @ 4240 (we are at 4484 as of writing - having found repeat support at 4140) in the first 30 mins defines whether there is a clear aggressive direction and a move above could set us up for a hold above 4300 should positioning continue to drive higher. VIX crush below 25 will also help produce the environment we expect.
Bear Scenario
If we maintain below 4180 in particular we’re interested in further sell off as this level provides a key level down. Big Tech ER hasn’t been a positive thus far and so we expect there to be a major issue to produce more upside given the majority of tech stocks have calls going into ER (the opposite of last ER). Positive positioning on Big Tech will hang like an anvil on flows as the positive deltas from calls provide a sinking pressure. A break below this could generate sell down to 4150 as Vanna flows above drive us lower and with put gamma at 4330 and below increasing exponentially. This begins to act as a magnet to price with selling intensifying from above and below. We would need to see call buying decline in AAPL/TSLA as well as semi weakness, very important as TSM has just reported upward guidance. VIX maintaining over 25, new highs with VIX combined with ES new lows 22 which adds credibility to increased sell. We would also need to see some weakness in big tech, in particular we note AAPL, TSLA, MSFT as these remain the key drivers of the prior rally particularly and strength in gold miners and other precious metal cos (NEM, GLD,SLV etc)
SPYGamma Environment: Negative (-1.73Bn)
Key Gamma Levels:
27th
430 - R3 resistance
425 - R2 resistance
420 - R1 resistance
418 - S1 (First Support)
417 - S2 (Second Support)
415 - S3 (Third Support)
VOL Model - Upside likely 4240 30min+ (425)
Gamma Model - Upside likely (4220) > 4220
Order-flow Model - Upside likely > 4220
Macro Model - Downside likely
Seasonality Model - Less upside likely
Views:
* Positioning has now reverted back to 90th percentile typical gamma positioning during this time period, as a result we have noted that there is a risk to the downside. Following a marginal beat by MSFT and miss by GOOG. We can expect some potential downside. With the new MVEX VOLA model (soon to be released on the dashboard). We remain cautious at this juncture and express downside risk potential with a completely unexpected negative ER from GOOG’s cloud business we can expect that AMZN may produce similar effects.
* Based on macro conditions we do not expect natural buyers to exist and with more muted returns coming at the end of this we do not expect the major bounces seen today. We also note that the TLT has showed continuous strength whilst the market dumped, though this reversed and yields returned to their standard correlation.
* This was and remains a key indicator. Note the 10-yr (TNX) now continues to slow down which suggests that bonds are now being bought, question is. There is some short term noise with some recent export bans. We are also now approaching a point where bonds can attain positive real yields, a sign this isn’t bullish for equities, as a result flows into equities may lessen and move back into bonds.
* VIX levels based volatility range of +2%/-2%, Negative gamma environment volatility is likely to continue to be more volatile than the prior week given the switch up in positioning.
* SPY remains in deeper negative territory across the board (both short and long term) (now at $-1.73bn, down from -1.78bn) yesterday looking two months forward). This keeps us in a balance and a preferable criteria for a bounce would be a
2BN+ read. That being said, big tech remains in negative positioning as funds hedge and as a result, following the end of this ER week we can expect an unwind in this which could provide a bounce to be gamed. However given that current positioning that provided fuel for upside on big tech (-368m previously - a noted peak this year) and semis (note an extreme rally on NVDA) we are looking at some potential for reversion based on this as a result.Is the hedge in place?
* The VIX has experienced a major rally and as a result we can say for sure that the hedges are very much in place and once again are now leading to a much greater increase in downside, however as we have learnt in several instances. Too many puts lead to…
* Call volumes +25% and put volumes +26% with puts REMAINING at ~1.5x the volume of calls, following a peak call/put volume disparities. Nearing call volume and put volume lows for the year which is expected given the easter weekend. This remains consistent with the balance day yesterday and so a peak up in this department on either side should begin to give direction.
* 10 Delta Put premiums (436C) vs call IV (at the 10 delta, 416P) is 1.1x in the short term and 1.1x across duration an IV basis, the skew here suggests that on the short term basis puts aren’t favourable. They do however remain more favourable beyond this week. Additionally this vol isn’t the highest read we have had thus far, with 2x presenting very strong risk reward. IV skew blows out below 425 and with the tails now currently offering an asymmetric return for those involved in the options market. Flows pushing lower should likely slow.
OrderFlow
For order flow perspective levels please see the levels provided in the chart. See these lines as “barriers” to overcome and if done then price can be “accepted” into areas where previous buyers (Navajo white = up volume) and sellers (purple = down volume) wanted to engage up until points where there are much greater levels of volume. These are areas that you can consider as greater points of resistance.
Calls/Puts Volume
Bull Scenario
Above 4240 (with continuous bid at 4250) (
ES) additional call buying to increase up the chain at further expiries and up the chain would be needed to continue this drive up. Note the skew toward call buying has lightened again but below we have a large delta of puts are set to unwind in two days which can give room to a bounce (not a small amount either). We need put buying in further duration to lower and call buyers to move higher. Continuous exhaustion @ 4240 (we are at 4484 as of writing - having found repeat support at 4140) in the first 30 mins defines whether there is a clear aggressive direction and a move above could set us up for a hold above 4300 should positioning continue to drive higher. VIX crush below 25 will also help produce the environment we expect.Bear Scenario
If we maintain below 4180 in particular we’re interested in further sell off as this level provides a key level down. Big Tech ER hasn’t been a positive thus far and so we expect there to be a major issue to produce more upside given the majority of tech stocks have calls going into ER (the opposite of last ER). Positive positioning on Big Tech will hang like an anvil on flows as the positive deltas from calls provide a sinking pressure. A break below this could generate sell down to 4150 as Vanna flows above drive us lower and with put gamma at 4330 and below increasing exponentially. This begins to act as a magnet to price with selling intensifying from above and below. We would need to see call buying decline in AAPL/TSLA as well as semi weakness, very important as TSM has just reported upward guidance. VIX maintaining over 25, new highs with VIX combined with ES new lows 22 which adds credibility to increased sell. We would also need to see some weakness in big tech, in particular we note AAPL, TSLA, MSFT as these remain the key drivers of the prior rally particularly and strength in gold miners and other precious metal cos (NEM, GLD,SLV etc)
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