SPX Gamma Wrap
The SPX declined 0.4 percent on Monday, mainly driven by large-cap growth stocks, which lost 1.1 percent, while value stocks gained 0.1 percent.
The energy sector (+2.6%) was outperforming the rest of the market as a result of higher oil prices (WTI +3.5%), which benefited from news that Shanghai was planning to phase in business re-openings.
The overarching theme on Monday was the increasingly gloomy macro picture stemming from weak data points out of China, a massively reduced outlook in Europe, and negative comments as well as a weak Empire State Index in the US.
Gamma discussion:
As suggested in our morning briefing the market got pinned to the gamma strike at 4000, and we might very well keep moving sideways into OPEX on Friday.
I addressed it a little bit on Twitter today: The “issue” bulls have at the moment is that implied volatility is “too cheap” at the moment (see chart below) and the VIX should be higher by about 7 points according to long-term correlations.
https://bucket.mlcdn.com/a/3517/3517811/images/1ec7bde0dc710298ac1b11dbd0bcfc10916275d5.png
Yes, a relatively low VIX creates a bottom under the market, as the slow decline forces dealers to buy back shares, but it is also true that the probability of a sharp bear market rally induced by a fast compressing VIX is getting reduced.
Putting the described dynamics together GL continues to favor the scenario of a pin at 4000.
Implied dealer gamma -961MM; gamma inversion 4325; pivot 4000; support 3900/3950; resistance 4100.
The energy sector (+2.6%) was outperforming the rest of the market as a result of higher oil prices (WTI +3.5%), which benefited from news that Shanghai was planning to phase in business re-openings.
The overarching theme on Monday was the increasingly gloomy macro picture stemming from weak data points out of China, a massively reduced outlook in Europe, and negative comments as well as a weak Empire State Index in the US.
Gamma discussion:
As suggested in our morning briefing the market got pinned to the gamma strike at 4000, and we might very well keep moving sideways into OPEX on Friday.
I addressed it a little bit on Twitter today: The “issue” bulls have at the moment is that implied volatility is “too cheap” at the moment (see chart below) and the VIX should be higher by about 7 points according to long-term correlations.
https://bucket.mlcdn.com/a/3517/3517811/images/1ec7bde0dc710298ac1b11dbd0bcfc10916275d5.png
Yes, a relatively low VIX creates a bottom under the market, as the slow decline forces dealers to buy back shares, but it is also true that the probability of a sharp bear market rally induced by a fast compressing VIX is getting reduced.
Putting the described dynamics together GL continues to favor the scenario of a pin at 4000.
Implied dealer gamma -961MM; gamma inversion 4325; pivot 4000; support 3900/3950; resistance 4100.
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