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SpotGamma Quarterly Report Card: Q2'24


Market Synopsis: Q2 2024

April introduced a market correction that brought SPX beneath 5000, following a strong run in Q1. After SPX lost the 5200 level which we identified as critical support, it dropped down to our next critical support level at 5000. On the morning of this breach of 5000, we established that the market should return to safety if we can close above 5020. We closed that day at 5038 and the market rallied throughout the remainder of the quarter. And then, in early May, we noticed that call skew was heating up while IV was highly depressed. On top of a surge in stock-buying versus a stalled index, this led us to forecast an upcoming leg up. Finally, in June, a pattern of 0DTE buying was registering in our flows at support levels, which gave us high confidence to expect a meaningful bounce in equities. The result was the market bursting through new all-time highs.

Tradable events and SpotGamma guidance include:

4/8 - SPX stood at high risk of volatility if critical support at 5200 could not hold
5/6 - Low implied volatility and high call skew paving the way for an upside move
6/4 - 0DTE rescues from within our neutral zone were setting the market up for a strong and responsive bounce

SpotGamma Key Market Analysis


4/8 - CORRECTION AT 5200

SPX Stood At High Risk Of Volatility If Critical Support At 5200 Could Not Hold

After a seemingly unstoppable rally that opened up the year and sailed it up to 5250, we saw an acute amount of risk if 5200 broke as support because there was little underneath it to slow down prices below that: “We continue to use 5,200 as our barometer for risk, with relative safety seen >5,200, and high risk <5,200. […] Below 5,200 we must respect the specter of jumping volatility, which can force prices lower. 5,200 is the largest strike on the board, and likely to be the center of flows today and tomorrow.” What ended up happening is that, after a breach of 5200, a correction began the next day and continued for nine market days, dropping as low as 4953.


Low Implied Volatility And High Call Skew Paving The Way For An Upside Move

SPX was hovering above strong support at 5100 and call skew was heating up in a low implied volatility environment. In addition to stock baskets being bought heavily despite a volatile index, this led us to favor speculation of an upside move: “For this week we favor ‘drift higher’, with moderate resistance at 5,150 - 5,165, and more formidable resistance at the 5,200 Call Wall. Bulls have control while SPX >5,100… Here we plot Skew Rank vs IV Rank, with the most bullish positioning reflected by stocks in the top left of the chart. This tells us that volatility is low (IV Rank), and calls are being favored (Skew Rank). Bearish positions would show the red cloud toward the bottom right. As we think it’s a quiet week, we see no reason for single stock traders to back down from bidding.” The result was an eight-day market climb from 5142 to 5311.


0DTE Rescues From Within Our Neutral Zone Were Setting The Market Up For A Strong And Responsive Bounce

After the price action was threatening another correction for 2024, we saw a pattern of market bounces clustered in the center of our neutral zone. These bounces had been strictly reinforced and bolstered by 0DTE rescues, identified by our HIRO option flow tool. “To this 0DTE point, you can see the options flow come in to buy the dip over the last two sessions in the HIRO chart below, as highlighted with red arrows. These are very large, material flows of ~$8bn notional on Friday, and ~$4bn yesterday. We'd also note that these bounces source from just under key support levels: 5,200 Friday and 5,250 yesterday…. Accordingly, should the S&P dip today, we'd be eyeing the key support levels of 5,250 and 5,200 for a strong, responsive bounce.” Later that day, SPX dipped to 5257, and then bounced into the steepest bull run of the year as we advanced into new all-time highs, running up to a close of 5487 over the next nine market days.


VIX Expiration: Watch for a buoyant impact on equities

SPX had just gapped down after three down market days. In the morning, we pointed out how it was VIX expiration and that the most expected result would be a move up from there. The market closed higher for the next six market days. From our 01/17 AM note: “In regards to the VIX expiration, we've chronicled many instances in the past (see Dec note here) in which equity markets have found some buoyancy the day before, and morning of VIX expiration... Back to the VIX, this morning we see the VIX at 14.5, which is its highest reading since mid-November.”

2/1 - run to 5000

If 4900 is breached by the morning, a conditional run up to 5000 is likely

This was the morning after the biggest red day of the year. But based on structural reasons, we saw the most likely outcome to be a quick run up to 5000 if SPX wa