Weekly Recap:
● Markets broke the key 380-385 resistance zone
● This opens up room for a move to 400
● Negative gamma has reduced markedly
● Short term the rally has fuel, but should stall
Market Abstract:
While we had a shortened trading week due to the holiday on Monday, the markets staged a solid rally on Friday, breaking a key resistance zone between 380-385. This break and close near the weekly high has reduced the negative gamma in the markets substantially from -$1.3B last week to -$330M. This now opens up room for a move up to 400, which we think the rally should stall at this week as call interest above this is rather anemic.
We also have a large JPM collar trade (long SPX + short call {above market} + long bear put spread {below market}) that is about to be rolled on Jun 30th. There are a lot of hedging flows attached to this trade, and because it’s such a monster all traders are aware of, there is likely some front running of those flows which contributed to this rally.
Overall calls saw an uptick above 380, but that uptick got smaller the higher the strikes suggesting there isn’t gangster appetite above 400. There is one large uptick around 418 (~20K calls) which could be someone expecting a large rally, or someone wanting to sell some low prob. ITM calls to collect some premium.
Meanwhile on the put side, the only upticks there from Friday were 380 and below (10-20K calls at 380, 370, 360) while the largest STR by put OI is 350 (~500K) while 400 is posting about 225K contracts there.