SPY pinned right in the middle

Gamma Environment: Negative (-1.2bn)
Key Gamma Levels:
8th
457 - R3 resistance
455 - R2 resistance
453 - R1 resistance

450 - S1 (First Support)
448 - S2 (Second Support)
445 - S3 (Third Support)

Views:

Following what was expected to be a much larger move, we had very little in the way of realised vol despite the strong words from Bullard yesterday. With peak negative positioning at 4400 not reaching through the day, we noted that there was a major ramp up from 2PM EST, as charm flows (delta decay) ate into the inventory held with respect to this strike and lower.

VIX levels based volatility range of +1%/-1%, Negative gamma environment volatility is likely to continue to be more volatile than the prior week given the switch up in positioning and with an OPex looming and still -1.2bn in negative positioning that remains.

SPY pushed into negative gamma territory (short term) and long term AGAIN (now at $-1.2Bn, down from -2.9bn yesterday looking two months forward), producing a 6 z score implying we remain in major outlier territory.

Call volumes -17% and put volumes -32% with puts now only 2.2x the volume of calls, following a peak call/put volume disparities. Call buyers gamed the latter end of market hours with delta decay (charm) from 445 strike providing flows to the upside. TAANG positioning remains at a neutral level, with no clear direction to either side. This is not unusual and remains an observation but also isn’t the estate for a reversal.

10 Delta Put premiums (448C) vs call IV (at the 10 delta, 438P) across duration are near parity on an IV basis, the skew here suggests that on the short term basis puts aren’t favourable but further out become so and this is to be expected given the view of Opex being a “vol event”. The scene right now sets for a range to be built out between 460 and 440 as things stand.

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 4520 (with continuous bid at 4480) () 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 today which can give room to a bounce. We need put buying in further duration to lower and call buyers to move higher. Continuous exhaustion @ 4520 (we are at 4486 as of writing - having found repeat support at 4454) 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 4580 should positioning continue to drive higher. VIX crush below 18 will also help produce the environment we expect.

Bear
Scenario
If we maintain below 4450 in particular we’re interested in further sell off as this level provides a key level down. That being said this will be a difficult area to break. A break below this could generate sell down to 4400 as Vanna flows above drive us lower and with put gamma at 4400 increases 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. VIX climbing over 20 and hold above 22 then signs that VIX is being bid and presence of further downward trend are present are increasingly there. We would also need to see some weakness in big tech particularly and strength in gold miners and other precious metal cos (NEM, GLD,SLV etc)

Gamma Environment: Negative (-686mn)

Key Gamma Levels
8th
360 - R3 (NQ -14757.0)
357 - R2 (NQ - 14634.0)
355 - R1 (NQ - 14552.0)

353 - S1 (NQ - 14470.0)
350- S2 (NQ - 14347.0)
347 - S3 (NQ - 14224.0)

Views:

Q’s remain in deep negative positioning territory despite some reprieve and with a large set of option carried set to expire today more of the same is expected should we note drawdown lower fast enough.

Put IV to call IV is skewed again (Puts 1.5 vs Calls ) the 10+/10- Delta (363 vs 343). Following this recent drawdown with members not positioning to hedge this major buying of puts has resulted in a spike in cost and as a result drawdown is harder to achieve given these current skews. We continue to review VIX and look for this to hold above 20 to determine an increase in puts.
(Key themes below still stand)
A key eye remains on energy names as we look to see for continued flow out of equities and has finally ticked off (note the flow into XOM/CVX and their respective breakouts yesterday.) This is important for more drawdown, without strength in commodities we are unlikely to see much lower. We also noted weakness in steel, copper etc though a downtrend is yet to be confirmed.
The cash has to go somewhere? Following yesterday and reviewing flows seems to be clear that flows aren’t majorly pushing into commodities as we expected. If anything they propped up big tech, note AAPL never broke below 170.
(Unchanged)
Bonds: HYG,LQD,BND maintaining weakness indicate much lower which seems to be the case thus far and as mentioned in the past HYG has served as an impressive indicator regarding the weakness of the market with its halting serving as a signal for higher.

FANG (Big Tech) had a ~30% change in net positioning 89mn net gamma from 62mn. This isn't the type of scenario that provides a charm flow to either side, so as a result we rely on price moving beyond key strikes on Big tech to introduce vanna sells.

A continuous bid at 355 (14552.0) is key to demonstrate lack of bearish bias and unwind of any put flows bought. Maintain a view of AAPL, TSLA, GLD, NEM, HYG,AMD,SMH, DOCN, PANW, ARK, XOM, XOP, SLV with the commentary above in mind.

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 and sellers 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.

Bull Scenario
If we can hold above 355 (14552.0) with a move higher into (ideally above) 357 (14634.0) into the close, additional gamma levels would need to increase further (particularly at the 360 mark) up the chain and as a result positive deltas would need to bought higher. The large (~200m) negative gamma in short duration below should also continue its last legs and decay (charm flows). (Note the skew) We would also want to see the VIX continue to drawdown and maintain below 18.

Bear Scenario
Maintaining below 353 (14470.0) should result in the decline down to 350 (14347.0) and 347 (14224.0) potentially on the cards should VIX remained elevated with a gradual increase. Strength in commodities and weakness in AAPL/TSLA in particular especially at 172 will demonstrate a lack of bias to the upside. As mentioned above we would want to see SLV, XAUUSD and CL (Oil) get a bid (noted in call vs put volumes as of late). If we continue to get cross asset sell we maintain sell regime, there is little hope for bulls.

Any questions,
Hit me up on twitter @Vexxly.

Appendix:

Key Terms:

Key Gamma Levels:

Areas to identify for key support and resistance i.e. a call wall can act as a resistance zone as call buyers sell as we reach closer to the money and so MMs will re-hedge accordingly

Negative Gamma = Increased volatility
Why? Because MMs are enhancing volatility and flows are supportive of direction

Positive Gamma = Reduced volatility
Why? Because MMs are suppressing volatility and flows are against of direction

Gamma Environment (Negative/ Positive)

Vol Trigger (Where gamma flips through a key negative level and reinforces flow, as MMs re-hedge)

R1/R2 resistance - resistance level one etc

S1/S2 support - support level one/two etc

Note:
This information was never intended nor will ever be considered a place to give or receive investment advice. This information was created for the sole purpose for education and fun. Anything said by anyone on this commentary should never be taken as investment advice. Do your own due diligence before making any decisions to invest your money and seek investment advice from a registered advisor should you choose to do so.