At a tilt

2022年4月22日

SPY

Gamma Environment: Negative (-908mn)

Key Gamma Levels:

22nd
442 - R3 resistance
440 - R2 resistance
438 - R1 resistance

435 - S1 (First Support)
433 - S2 (Second Support)
430 - S3 (Third Support)

VOL Model - Downside likely on longer timeframe 1h+
Gamma Model - Upside likely (4350)
Orderflow Model - Downside likely < 4350
Macro Model - Downside likely
Seasonality Model - Upside Likely


Views:

* Prior day gave a recent balance in the day touching both ends of the day range (vol was expected given the negative exposure across the board). What is notable is the lack of negative exposure on some key components such as semis and big tech (see exposure). Not we also remain at high negative positioning which is yet to reach levels expected.

* Based on macro conditions we do not expect natural buyers to exist and with more muted returns coming at the end of this we do not expect the major bounces seen today. Note the 10-yr (TNX) maintains its rip higher (now 2.92%), though this is expected to slow down as we reach toward 3%. We are also now approaching a point where bonds can attain positive real yields, a sign this isn’t bullish for equities, as a result flows into equities may lessen and move back into bonds.

* VIX levels based volatility range of +1.2%/-1.2%, Negative gamma environment volatility is likely to continue to be more volatile than the prior week given the switch up in positioning.

* SPY remains in less negative territory across the board (both short and long term) (now at $-372mn, down from -1.3bn yesterday looking two months forward). Once again we maintain this stair step sell where negative positioning reaches a peak and then nadirs lower. As vol stabilised (this gave a signal to go long which has thus far produced a 100% hit rate, note this will be provided to subs). However given that current positioning that provided fuel for upside on big tech (-700m previously - a noted peak this year) and semis (note an extreme rally on NVDA) we remain cautious on further upside given the lack of push beyond 4400.

Is the hedge in place? - Not entirely (Unchanged and remains more so today than yesterday)
* With the VIX also near YTD lows it becomes hard to justify that participants are entirely hedged. Combine this with the lack of “peak” positioning, this provides room for the “floor” to be lifted as mentioned last week. 

* Call volumes -7% and put volumes -14% with puts REMAINING at ~2x the volume of calls, following a peak call/put volume disparities. Nearing call volume and put volume lows for the year which is expected given the easter weekend. This remains consistent with the balance day yesterday and so a peak up in this department on either side should begin to give direction.

* 10 Delta Put premiums (445C) vs call IV (at the 10 delta, 425P) is 1.24x in the short term and 1.2x across duration an IV basis, the skew here suggests that on the short term basis puts aren’t favourable. They do however remain more favourable beyond this week. Additionally this vol isn’t the highest read we have had thus far, with 2x presenting very strong risk reward. IV skew blows out below 425 and with the tails now currently offering an asymmetric return for those involved in the options market. Flows pushing lower should likely slow.


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 4400 (with continuous bid at 4450) (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 again but below we have a large delta of puts are set to unwind in two days which can give room to a bounce (not a small amount either). We need put buying in further duration to lower and call buyers to move higher. Continuous exhaustion @ 4444 (we are at 4422 as of writing - having found repeat support at 4420) 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 4460 should positioning continue to drive higher. VIX crush below 18 will also help produce the environment we expect.

Bear Scenario

If we maintain below 4350 in particular we’re interested in further sell off as this level provides a key level down. Big Tech ER hasn’t been a positive thus far and so we expect there to be a major issue to produce more upside given the majority of tech stocks have calls going into ER (the opposite of last ER). Positive positioning on Big Tech will hang like an anvil on flows as the positive deltas from calls provide a sinking pressure. A break below this could generate sell down to 4300 as Vanna flows above drive us lower and with put gamma at 4330 and below increasing 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, very important as TSM has just reported upward guidance. VIX maintaining over 22, new highs with VIX combined with ES new lows 22 which adds credibility to increased sell. We would also need to see some weakness in big tech, in particular we note AAPL, TSLA, MSFT as these remain the key drivers of the prior rally particularly and strength in gold miners and other precious metal cos (NEM, GLD,SLV etc)



QQQ
Gamma Environment: Negative (-908mn)

Key Gamma Levels
22nd
340 - R3 (NQ -13937.0)
338 - R2 (NQ - 13855.0)
335 - R1 (NQ - 13732)

333 - S1 (NQ - 13650.0)
330- S2 (NQ - 13527)
328 - S3 (NQ - 13445.0)


VOL Model - Downside likely (long term) short term bounce (at time of writing)
Gamma Model - Upside likely (should 333 not be taken out)
Orderflow Model - Upside likely (same as above)
Macro Model - Downside likely


Views:

* Q’s moved 120% into deep negative territory again presenting a reversal trend at this juncture, with around 10% of this set to expire today, some bounce should be expected. That being said, with ER coming next week, it would make sense for yield chasers to want this market lower if positive returns are expected on ER. That being said the VOL model remains signalling some more downside.

* Put IV to call IV is normalised across duration (with skew towards calls in short duration) again 1.25x (Puts vs Calls ) the 10+/10- Delta (343 vs 323). Following this recent drawdown with members not positioning to hedge this major buying puts has resulted in a spike in cost and as a result drawdown is harder to achieve given these current skews. We continue to review VIX and look for this to hold above 20 to determine an increase in puts. 
(Key themes below still stand)

* Energy names showed weakness yesterday whilst tech bid lower, this is not a normal sign. Cross asset sell is usually another indicator of intense market fear. Note that positioning remains net long in reasonable duration on energy which in short provides room for flows out of it and you would expect this to be a positive for tech. Miners who have experienced a major rebalance of positioning also now seem like there is an opportunity to review for a short term swing higher.
*
* Short dated positive positioning in big tech is still set to unwind on AAPL and as we have seen before a weak AAPL leads to market downturns. This acts a sinking pressure providing a potentially muted to negative day on the Qs as a result. We also continue to see an increase in positive positioning toward precious metals including SLV in particular (over gold). This is important for more drawdown, a typical heuristic has been precious metals show a flight to safety in a place where cash is leaving typical safe havens such as Treasuries (in anticipation of increased rates, see UB1). We also noted weakness in steel, copper etc which continues despite a relatively similar CPI measure.

* As mentioned above, with real yields now approaching 0 and near positive, cash left out of bonds, see TLT not continue a dump yesterday. We will see whether this is right move in particular come the next CPI print. Following yesterday and reviewing flows seems to be clear that flows aren’t majorly pushing into commodities as we expected. If anything they propped up big tech. For bullish bias to maintain we want to see AAPL > 165 as a result.

* Bonds: HYG,LQD,BND maintaining weakness indicate much lower which seems to be the case thus far and as mentioned in the past HYG has served as an impressive indicator regarding the weakness of the market with its halting serving as a signal for higher.


* FANG (Big Tech) had a 100% increase in net positioning 70mn net gamma from $-664mn. This area of positioning tilts depending on the shorter term charm/vanna flows which estimate that big tech has some room to move lower as a result. That being said if semis can reverse as they remain heavily shorted (TSM as an example) can as we have seen, provide fuel higher.


* A continuous bid at 333 (13650.0) is key to demonstrate lack of bearish bias and unwind of any put flows bought. Maintain a view of AAPL, TSLA, GLD, NEM, HYG,AMD,SMH, 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 335 (13732) with a move higher into (ideally above) 338 (13855.0) into the close, additional gamma levels would need to increase further (particularly at the 355 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. (Note the skew) We would also want to see the VIX continue to drawdown and maintain below 18.

Bear Scenario
Maintaining below 340 (13650.0) should result in the decline down to 338 (13527) and 335 (13445.0) potentially on the cards should VIX remained elevated with a gradual increase. Strength in commodities and weakness in AAPL/TSLA in particular especially at 165 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). If we continue to get cross asset sell we maintain sell regime, there is little hope for bulls. Note SLV has had a bid as of late



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.