Option Analysis Setups: $SPY Likely Continues Positive Drift, But Op-Ex Should Shake Up Vol
Weekly Recap:
● Positive drift with lower share volume saw a modest rally
● While share volume was low, PA was consistently above weekly VWAP
● Markets are pressing into first resistance layers
● Deep resistance still lies ahead
Major Market Indices & Option Flows
1: S&P 500 ETF ($SPY)
Last week markets globally found some positive drift and a reduction in negative gamma with the SPY’s gaining +4.4% on the week despite a reduction in share volume mostly all week.
Deltas were mostly flat to end the week with puts and calls being sold. This is part of the reason why SPY’s never ripped (except for the first day of trading last week).
The term structure shifted down a bit, especially in the front end of the curve as VIX has continued to move lower, likely providing a modicum of lift to the markets.
But overall prices were not too impulsive, which led to strikes each day collating around the PA mid-ranges for the day and around key levels. With strikes and OI coming in versus moving out, volatility reduces, and this provides a short term support/lift to the markets.
This increases positive gamma, which has been increasing all week (just not enough to fully come out of negative gamma).
And herein lies the issue – the buildup of positive gamma that has helped to reduce volatility is coming off the board this week a bit with the monthly op-ex.