SpotGamma Report for: 03/05/2021 PM

Mar 05 2021

SpotGamma Report for: 03/05/2021 PM

Daily Note: Something for everyone today. The magnitude of these moves - the volatility of volatility - has been staggering. We covered somewhere north of 225 handles today with a ~3727 SPX low to ~3850 high. @callieabost noted: "this [is] the S&P 500's biggest gain on a day when it fell 1% intraday since October […]

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Mar 05 2021

SpotGamma Report for: 03/05/2021 AM

Daily Note: Futures are at 3775 off of overnight lows near 3740. 3800 remains the largest strike on the board, and continue to hold that as the critical risk line. Gamma remains negative across all indices, with QQQ holding the most volatile position. We are anticipating a fairly large directional move today, with implied volatility […]

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Mar 04 2021

SpotGamma Report for: 03/04/2021 PM

Daily Note: Quite a wide range in markets today, with the SPX moving over 120 handles closing -1.3%. Powell didn’t say what the markets wanted to hear, and that sparked a volatile move down from 3840 to a 3725 low which is what we tagged as support this morning. The moves in QQQ (3.8% range) […]

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Mar 04 2021

Nomura: “Max Short Gamma” Pain… But Relief Is Coming

Via ZH:

Earlier this week we pointed out a bizarre divergence in the “greeks” – while the Nasdaq had slumped into negative gamma territory, which is where dealers are forced to sell more as the Nasdaq slides lower creating a feedback loop where selling begets selling, even as the S&P still remained in positive gamma as a result of the rotation into value names which propped up the index.

Well, the divergence is no more.

After yesterday’s marketwide rout – which was launched by yet another powerful blast of bear-steepening as yields surged following the latest “scorching inflation” comments out of the latest round of ISM and PMI surveys – and which saw further unwinds as expensive “secular growth” longs where smashed – Nomura’s Charlie McElligott notes that the Nasdaq/“Secular Growth”/Expensive Stock pain dragged SPX into “negative gamma & delta” territory with it (dealers negative gamma vs spot below SPX 3871, negative delta vs spot below 3819). However, as the Nomura quant notes, “it is the extreme magnitudes of the current QQQ’s greeks which make this market so fragile” with a huge short gamma overhang chasing every move lower in the Qs.

QQQ $Gamma -$852mm, 0.9%ile since 2013
QQQ $Delta -$30.7B, 0.1%ile

And right now with QQQ spot around $308-309 preopen, Nomura warns that we sit almost at “max short gamma” pain point.

That’s the bad news. The good news is that as McElligott critically notes, ~31% of said QQQ Gamma is set to run-off after tomorrow’s weekly expiration, with the most substantial chunks at 310, 315 and 320. Which means that absent another major selloff, the Nasdaq will finally get reprieve as the negative gamma shrinks by a third, and dealers cover forced shorts.

SPX:

QQQ:

And while the Nasdaq has at least a few more hours of pain to look forward to (any SLR commentary from Powell today will lead to a blast off in all long duration assets), what about the SPX? Here an interesting observation from our friends at SpotGamma, who note that while SPY implied volatility has picked up, it remains below that of late January market spasm – as shown in the chart below, each dot here represents an option with a different expiration. “In other words we are realizing a higher volatility than at any point since June ’20, but downside protection is not being priced at a similar level.”

Their conclusion, which as we discussed yesterday is very much predicated on what Powell says today, is that despite the negative skew to their views, “the SPX has room for a quick move back to 3850 if markets are calmed by the Fed, and implied volatility (ie VIX) comes in.” That said, a more stable bull run starts above 3900 and SpotGamma is “skeptical of any rally until/unless markets recapture that large gamma level.”

Mar 04 2021

SpotGamma Report for: 03/04/2021 AM

Daily Note:

Futures are holding 3800 after making a 3780 low overnight. Gamma is negative across all indicies indicating a large trading range is in store today. The largest gamma strike has shifted from 3900 to 3800, which is again highlighted as our critical support mark. We feel a push below that 3800 level likely energizes put positions and draws dealer short hedges. Beneath 3800 we see two support levels: 3728 (Combo Strike) and 3700(Put Wall).

Traders used yesterdays drawdown to net close put positions >=3820 in SPX and 384 in SPY. Recall in last nights note that the SPX volume was tilted towards calls yesterday. Combined, this suggests little real demand for downside protection.

SPX SPY Put Change

With this low put demand its apparent that realized volatility has broken out as you can see below. However our risk reversal metric reflects that put prices have not made a large move relative to calls.

Realized Volatility SPX SPY implied volatility has certainly picked up but still remains below that of late Januarys market spasm (each dot here represents an option with a different expiration). In other words we are realizing a higher volatility than at any point since June ’20, but downside protection is not being priced at a similar level.

SPY Implied Volatility

Much of what happens in the markets today may be determined by what Fed Powell says at 12EST today. There is a lot shifting in the bond/credit markets and if that volatility continues it likely spills into equity markets.
Despite the negative skew to our views, the SPX has room for a quick move back to 3850 if markets are calmed by the Fed, and implied volatility (ie VIX) comes in. That being said, we maintain that a more stable bull run starts from >3900 and would be somewhat skeptical of any rally until/unless markets recapture that large gamma level.

Macro Note:

3800 support 4000 resistance into March OPEX

Signal Name	Latest Data	Previous	SPY	NDX	QQQ
Ref Price:	3802	3814	379	12612	309
VIX Ref:	26.67	26.67
SG Gamma Index™:	-0.23	0.14	-0.06	-0.02	-0.17
Gamma Notional(MM):	$-308	$-379	$-379	$-3	$-1,009
SGI Imp. 1 Day Move:	1.26%,	48.0 pts	Range: 3754.0 \| 3850.0
SGI Imp. 5 Day Move:	3835	5.28%	Range: 3633.0 \| 4038.0
Zero Gamma Level(ES Px):	3850	3863	—		0
Vol Trigger™(ES Px):	3855	3860	384	13300	320
SG Abs. Gamma Strike:	3800	3900	385	12800	310
Put Wall Support:	3700	3700	375	12500	310
Call Wall Strike:	4000	4000	395	13700	335
CP Gam Tilt:	0.93	0.79	0.88	0.76	0.42
Delta Neutral Px:	3727
Net Delta(MM):	$1,267,161	$1,252,131	$198,063	$37,391	$90,428
25D Risk Reversal	-0.1	-0.1	-0.11	-0.11	-0.11

Top Absolute Gamma Strikes:
SPX: [3900, 3850, 3800, 3700]
SPY: [395, 390, 385, 380]
QQQ: [320, 315, 310, 300]
NDX:[13000, 12800, 12500, 12000]
SPX Combo: [3876.0, 3872.0, 3728.0, 3902.0, 3800.0]
NDX Combo: [12619.0, 12418.0, 12292.0, 12821.0, 12330.0]
The Volatility Trigger has moved DOWN: 3855 from: 3860
SPX is below the Volatility Trigger™. The 3850.0 level is first level of resistance and is critical as its the negative gamma threshold.
The trigger level of: 3855 will act as overhead resistance.
Watching VIX is key, if volatility comes in dealers will start to buy back shares as their short puts lose value. This could start a rally.
The total gamma has moved has moved UP: $-308MM from: $-380.00MM
Gamma is tilted towards Puts, may indicate puts are expensive
Negative gamma is moderate favoring further swings in the market

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SPX Ref: Estimated ES Futures price at which data was run.
VIX Ref: Estimated VIX price at which data was run.
SG Gamma Index: Proprietary gamma modeling index value.
Combo Strike™: A combination of SPY/SPY open interest, then “price normalized” back to the SPX
Gamma Notional: Estimated amount of notional gamma based on traditional gamma modeling.
SG Imp. 1SD Move: For one day ahead it is the projected 1 standard deviation SPX move implied by the SG Gamma Index.
High Gamma Strike: Strike with the highest level of net positive gamma. Seen as a resistance level.
Top Absolute Gamma Strike: Level with most call gamma + put gamma.
Zero Gamma Strike: Estimated level at which gamma flips from positive (above strike) to negative (below strike).
Volatility Trigger™: Similar to Zero Gamma in that its a level at which dealers may shift from positive (above trigger) to negative (below strike).
Click here for a Zero Gamma vs Volatility Trigger Diagram
Put Wall Strike: Strike with largest level of put gamma. Seen as a general support area.
CP Gamma tilt: Call gamma to put gamma ratio. Extreme readings may show skewed investor sentiment.
Delta Neutral Strike: Estimate where the options market may price the delta neutral level. This is NOT model adjusted meaning that we make no assumption on dealer positioning.
25 D Risk Reversal: A measurement of the 25 delta call minus 25 delta put on a ~30 day rolling basis. Used to measure call values relative to puts.

Mar 04 2021

SpotGamma Report for: 03/04/2021 AM

Daily Note: NOTE TO FOLLOW PREOPEN Macro Note:3800 support 4000 resistance into March OPEX Signal Name Latest Data Previous SPY NDX QQQ Ref Price: 3802 3814 379 12612 309 VIX Ref: 26.67 26.67 SG Gamma Index™: -0.23 0.14 -0.06 -0.02 -0.17 Gamma Notional(MM): $-308 $-379 $-379 $-3 $-1,009 SGI Imp. 1 Day Move: 1.26%, 48.0 […]

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Mar 03 2021

SpotGamma Report for: 03/03/2021 PM

Daily Note: The SPX closed on the days low of 3820, holding fairly flat until about 1PM est. The SPX options volume was decent 1.1mm contracts and a call weighted 1.5PC ratio. This isn't particularly big volume considered it was an OPEX day, and its interesting that it is call weighted ratio given the 1.3% […]

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Mar 03 2021

SpotGamma Report for: 03/03/2021 AM

Daily Note: Futures tested 3910 overnight but have consolidated back under 3900. Major SG levels are all in line with yesterdays readings. Overhead resistance shows as 3900 and 3913, with key support at 3860. Its under 3850 that we see negative gamma pick up, and a break of that level likely leads to a test […]

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Mar 03 2021

SpotGamma Report for: 03/03/2021 AM

Daily Note: The SPX was unable to pull through the large 3900 strike today, and closed down 80bps on heavy selling into the close. QQQ and IWM were both weaker, both closing down ~130bps. There seems to be this rather strange dynamic to markets wherein buyers stall out >3900, and light put buyers step in. […]

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Mar 02 2021

SpotGamma Report for: 03/03/2021 PM

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