Peak Market Gamma Rises To 3,600

Peak Market Gamma Rises To 3,600

Tyler Durden

Wed, 11/11/2020 – 09:35

With futures big up aggressively and the emini opening for trading around 3,560, traders are wondering what this means for forced dealer flows, and potential market inflection points.

Well, according to our friends at SpotGamma, “we’re seeing a general shift in the options “structure” from =3600 which is what we like to see to confirm higher SPX prices. 3600 is now the largest gamma strike, and ZeroGamma if shifting up under 3500.”

As can be seen in the chart below, the bulk of positive gamma strikes are now forming around that 3,600 level which indicates that the market has some pull up into that area.

With total S&P gamma quite high at $1.5bn, its interesting to note that SPY notional gamma is $1.1bn of that. As Spot Gamma notes, “this high gamma represents market support and lower volatility.”

Meanwhile, the Risk Reversal indicator has seen a sizeable jump indicating call prices have increased sharply relative to puts. This seems to coincide with the “structure” shift noted above.

In contrast to the S&P, Nasdaq holds a negative gamma level, and while the Russell has increased to the positive side there has not been much call action there. And while SpotGamma is not able to surmise on sector rotations (tech value) it can say that “call volumes in these “covid crushed” names spiked meaningfully the last several days.”

Take the last 5 day call volumes in CCL (Carnival Cruise) which shows a leap in call trading (yesterdays volume is the top row). We’re now seeing some similar action in names like DIS and the airlines with bullish looking options setups. The major “stuck at home” plays like ZM and PTON now have distinctly bearish structures.

For today SpotGamma look for another fairly tight trading range on the day, with 3600 as resistance and 3500 support.

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Author: Tyler Durden