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SpotGamma Quarterly Report Card: 2022
Market Synopsis: Q4 2022
Q4’22 continued to provide tradable opportunities with high volatility, with the S&P 500 finishing the quarter +7.5% compared to the end of September. In October, U.S. equities had a very strong return of nearly 8% with investors seeing better than expected third quarter earnings from the 167 companies in the S&P 500 that reported in the month. In November, the index traded in a range of between 3700-4000 and closed just above that peak on the last trading day of the month, even following an FOMC interest rate raise of 0.75%. In December, we saw the bearish stock flows return and drive the market downward almost 6% to close the month as investors may have taken advantage of tax-loss selling following worrisome CPI data.
During this period, SpotGamma provided two meaningful key correct analyses during critical times in the quarter that reflected bearish guidance. These include:
SpotGamma Key Market Analysis
1/14 - JANUARY OPEX CRASH
SpotGamma Models Indicate Net Options Delta Expiration at Over $125 Billion
SpotGamma based its case on the expiration of deep in-the-money calls as a catalyst for volatility.
1/25 - THE LOWER BOUND
After Historic Stock Market Reversal, SpotGamma Calls Arrival at Lower Bound
After some extreme move in equities, SpotGamma called for the market hitting its lower bound. The put positions that were on, in a way, became fully hedged which may have resulted in a violent “snap back rally.”
3/11 - FOMC MARKET RALLY
Brent Calls for Market Rally Ahead of March OPEX on the Contrarian Investor Podcast
On the Contrarian Investor Podcast, Brent discussed how options hedging may impact stock prices, and why he thought markets may rally into the following week's options expiration, 3/18/22.
4/19 - VIX EXPIRY RALLY FADES
Options Expirations Remove Supportive Positions and Create Downside Risk
In our daily Founder’s AM Note, we alerted our subscribers that we see a likelihood for market weakness. Specifically, mean reversion back into 4400 is quite possible, and we give edge to that scenario as VIX expiry & S&P expiry removes supportive options positions. What followed was a -2% drop in SPX within 2 days, and -7.5% into month end.
5/4 - PROJECTed SELLING AHEAD
Look Out Below as the SG Vol Trigger Breached and the SG Call Wall Holds Strong
We alerted our subscribers that our proprietary metric, the SpotGamma Vol Trigger, moved lower as well as our resistance level dropped from 4400 to 4300. If the market failed to recover above the 4300 level, then we could see a quick test of 4000-4050. The market hit 4300 that day, then sold off -8.5%
6/3 - INVESTORS BACKING AWAY
Short-term Volatility is Shrinking as we Approach a Risky Period
Subscribers were alerted that there was only more week before the big VIX expiration / FOMC / OPEX window, and that the value of short-dated volatility was shrinking. As such, we offered the opinion that these next few sessions could be an advantageous time to consider some downside insurance. The market declined 10% from our recommendation into June OPEX.
7/19 - VIX EXPIRY RALLY
Equity Markets Could Rally into VIX Expiration
In our AM Founder’s Note, we alerted our subscribers in our “What to Watch” section that we could see strength as, “Equity Markets may jump into the Wednesday, July 20, 2022 VIX Expiration.” We then suggested that as, “Today is the last trading day before VIX expiration, and this day has been associated with strength in the recent months”, with our levels indicated a break above 3900 will then allow for the market to run higher. What followed was a near 3% move higher into the FOMC meeting the following week, exactly matching the SpotGamma expected 5-day move of 3.05%.
8/15 - large move downward likely
If The S&P 500 Stalls at 4300, Look Out Below
We alerted our subscribers that heading into the August 19th monthly options expiration, we expected to see $4300 on the SPX act as significant resistance. If this level cannot be breached to the upside, we would expect to see a large move downward. Next, the market dropped hard, and it only took 10 days to retest our $4000 SPX Put Wall level.
9/21 - post-fomc drop expected
The FOMC Can Send the Market to 3580 in Ten Days
On this day, traders were waiting for a major FOMC announcement at 2 PM ET. Our AM Founder’s Note projected that we could see a large move lower as we, “highlight 3580 as a major downside level into the end of the month." The FOMC spooked markets, and over the next ten days we saw the market drop to ~3580 at the end of September.
10/31 - "SUCKER PUNCH" RALLY REVERSAL
Look Out For the “Sucker Punch” Rally Reversing Lower
Markets had rallied on the back of short-dated (and even many same-day options). We warned that we had seen this before, and the markets were susceptible to a sharp short-term decline. The market dropped by 4pct over the rest of the week.
12/12 - Post-CPI Thrust to Fail
SpotGamma Beats Banks to the Forecast
SpotGamma's call that the CPI market move would be crushed was a unique one, and turned out to be spot on. As a result, a large bank (Goldman) shifted their view to match that of SpotGamma, heading into a giant options expiration.