Market Positioning on Q's and SPY

5 Apr 2022

SPY


Gamma Environment: Positive (289mn)


Key Gamma Levels:


5th
465 - R3 resistance
460 - R2 resistance
458 - R1 resistance


452 - S1 (First Support)
450 - S2 (Second Support)
447 - S3 (Third Support)


Views:


Vix no longer remains bid maintains a clear path below 18, given the current stats and the 100% spike the past would suggest we don’t see another spike till mid-2023. That being said, the key catalysts for vix that remain include an unexpected fed hike intra meeting. Major escalations from Russia on the Ukraine side.

VIX levels based volatility range of +1.2%/-1.2%, Negative gamma environment volatility is likely to continue to be more muted given the VIX’s current levels and as hedges begin to wind down.

SPY pushed into negative gamma territory (short term) and long term (now at $-1.4Bn, down from 1.03bn yesterday looking two months forward). We now look ahead with a cautious view on direction as we reach a tilt on direction. There still remains opportunity for bulls to take this up as the negative gamma environment skew provides short term charm flows in favour of bulls should we stagnate.

Call volumes -16% and put volumes -2% with puts now up to 2.2x the volume of calls. Following this drawdown there provides room as mentioned above to give a move higher should call buyers begin to step in. Note though that this volume is isolated to SPX and so in this case the underlying seems to have been the main driver in indices action. As a result we place an eye on TSLA/AAPL/MSFT contracts to see if volume continues to push in as there is likely to be some more put unwind in these names. As calls are likely to have unwound for the most part since last week already.


10 Delta Put premiums (465C) vs call IV (at the 10 delta, 445P) across duration remain at 1.1x on an IV basis (at parity), the skew here suggests puts are now much more favourable than before (explaining the increase in negative positioning) vs calls and even more so in the short term, so we expect some resistance going lower than 450 due to negative positioning at 452.
-2% on calls -16% on puts


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 4600 (with continuous bid at 4580) (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 dramatically but a portion of short date puts are still set to unwind (see screenshot). The majority of flow is likely to be driven by TAAN. (TSLA/AAPL/AMD/NVDA) given they attributed for ~3million contracts. Continuous exhaustion @ 4600 (we are at 4581 as of writing - having found brief support at 4520) 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 4600 should positioning continue to drive higher. VIX crush below 18 will also help produce the environment we expect.


Bear Scenario


If we maintain below 4550 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 4500 as Vanna flows above drive us lower and with put gamma at 4500 and under 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)






QQQ
Gamma Environment: Positive (-74m)


Key Gamma Levels
5th
375 - R3 (NQ -15371.0)
370 - R2 (NQ - 15166.0)
369 - R1 (NQ - 15125.0)


368 - S1 (NQ - 15084.0)
365- S2 (NQ - 14962.0)
360 - S3 (NQ - 14757.0)






Views:


Q’s positioning moved out of negative territory with AAPL buyback news leading the charge higher the move of which was a result of negative deltas that had to be bought back. Concentration at 375 is an area that could provide more pull higher should we break higher.




Put IV to call IV is even (Puts 1.1 vs Calls ) the 10+/10- Delta (379 vs 359). Despite the drawdown puts are reasonably priced vs calls and as a result we may expect more drawdown should puts continue to increase down the chain. 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, though this doesn’t seem to be the case. 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.
(Unchanged)
Bonds: HYG to maintain weakness as will help indicate much lower which seems to be the case thus far. Weakness/Strength in Gold & Oil should help with this continued upside. Note that the flow into energy stocks whilst initially seemed to be increasing still seems muted so this hesitance may be off the back of worry heading into the next business cycle where demand destruction is expected. Another indicator being china home growth.


FANG (Big Tech) had 124% increase in net positioning 490mn net gamma from 218mn, this positioning is an outlier in comparison to prior levels and is now reaching zones similar to February where we achieved a major rally. With breadth improving too this provides an extra boost and likely move higher to the Qs, though the window remains short for this week.




A continuous bid at 370 (15166.0) is key to demonstrate lack of bearish bias and unwind of any put flows bought. Maintain a view of AAPL, TSLA, GLD, NEM, HYG, CRWD, 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 370 (15166.0) with a move higher into (ideally above) 375 (15371.0) into the close, additional gamma levels would need to increase further( particularly at the 370 mark) up the chain and as a result positive deltas would need to bought higher. The negative gamma in short duration below should also continue its last legs and decay with this effect resulting in pops in the final market hours. We would also want to see the VIX continue to drawdown and maintain below 18.


Bear Scenario
Maintaining below 368 (15084.0) should result in the decline down to 365 (14962.0) and 360 (14757.0) potentially on the cards should VIX remained elevated with a gradual increase. Strength in commodities and weakness in AAPL/TSLA in particular especially at 177.5 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).


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.