Option Analysis Setups: $SPY Vulnerable Below This Level. Needs to Hold
Weekly Recap:
● The large monthly op-ex removed a lot of the bullish support end of week
● Markets are a little more ‘vulnerable’ to level breaches up and down
● Currently traders have little protection to start the week
● Below 415, traders will start seeking downside insurance
Major Market Indices & Option Flows
1: S&P 500 ETF ($SPY)
Last week markets tried to push the envelope at 430 but couldn’t hold past which we suspected and wrote about ahead of time. As the week went on, the reflexivity of options started to take over as the long calls that had been building up for weeks were starting to be closed, thus removing bullish support heading into the monthly op-ex.
There is a certain ‘vulnerability’ here as traders on Friday didn’t buy higher up and further out in time. It was mostly short dated options being traded, which doesn’t provide stability to the flows.
Traders also didn’t seek downside protection, which means that if we start to lose key support levels at 420 and 415, downside moves will be exacerbated due to the lack of protection, and thus forcing traders to pony up for protection, thus increasing the negative deltas and gamma.