4500 Gamma and Expiry. What to watch for.


The indices are unchanged to slightly red this morning. They were more red overnight but as has often been the case the past 2 weeks during this rally dips have been getting bought and there’s a seemingly underlying bid. When that changes is tough to say but this is a monthly expiry week and as we’ve discussed that can lead to a gamma regime shiftwhen some of those options clear. It is particularly important this week as both SPY (450) and SPX (4500) are near a big round number strike with heavy open interest. Something to watch over the next two days is does that 450/4500 level act as a gamma magnet and effectively pin the market to that spot? This is not a conspiracy of market makers/dealers when this happens, it is the fact that both long gamma, delta neutral players in the market and others that own calls or puts have stock to sell above 4500 and stock to buy below. That gamma accelerates into expiry, with each swing above and below meaning the stock needing to be bought or sold is closer to 100 deltas of the position, further compressing the “pinned” feeling. Whether that happens this week remains to be seen.

That gamma magnet can easily be broken with an escape velocity on news or sentiment change. But it is something to look out for, because IF it does happen, that may mean Monday morning feels different than Friday afternoon after that gamma has cleared on expiry. (it could then re-establish itself in December but it won’t be as heavy to start the month as it is the week of monthly expiry). The obvious sign that 4500 is not a magnet would be a sharp move today away from strike. The longer it hugs the area the more aggressive delta neutral scalpers have to be with their stock.

Pre-Market Movers:
Alibaba Group Holding ADR (BABA) -8.21%
Macy’s Inc (M) +7.77%
Walmart Inc (WMT) -6.44%
Plug Power Inc (PLUG) -6.90%
Cisco Systems Inc (CSCO) -10.14%
Jd.com Inc ADR (JD) -5.60%
Intel Corp (INTC) +0.89%
Xpeng Inc ADR (XPEV) -4.95%
Bilibili Inc ADR (BILI) -5.00%
Microsoft Corp (MSFT) +0.48%

Applied Materials, Inc. (AMAT) Expected Move: 3.49%
Ross Stores, Inc. (ROST) Expected Move: 4.20%
Dolby Laboratories, Inc. (DLB) Expected Move: 6.36%
Globant S.A. (GLOB) Expected Move: 5.50%
Post Holdings, Inc. (POST) Expected Move: 3.40%

Economic Calendar:
At 09:15 AM (EST) Industrial Production MoM (Oct) Estimates: -0.3, Prior: 0.3
At 09:25 AM (EST) Fed Williams Speech Impact: Medium
At 10:30 AM (EST) Fed Waller Speech Impact: Medium
At 12:00 PM (EST) Fed Mester Speech Impact: Medium

Unusual Volume:
TGT (+1132%), PANW (+854%), M (+728%), WMT (+648%), UPS (+610%), TJX (+599%), CSCO (+588%), BABA (+520%), MARA (+455%), JWN (+450%), SE (+449%), RIOT (+444%), MSTR (+442%), GLW (+431%), Z (+430%), ONON (+417%), JETS (+415%), FDX (+409%)

Chart of the Day:

SPX Weekly Butterfly at 4500 level risk/reward. A fly establishes a range similar to an Iron Condor but has a max gain level that is specific, in this case 4500. If the market makes a move beyond the (long strike) wings, similar to an Iron Condor, the trade becomes a max loss at expiry:

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Based upon publicly available information derived from option prices at the time of publishing. Intended for informational and educational purposes only and is not any form of recommendation of a particular security, strategy or to open a brokerage account. Options price data and past performance data should not be construed as being indicative of future results and do not guarantee future results or returns. Options involve risk, including exposing investors to potentially significant losses and are therefore not suitable for all investors. Option spreads involve additional risks that should be fully understood prior to investing. Securities trading is offered through Options AI Financial, LLC, member FINRA and SIPC

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