Option Analysis Setups: $SPY Weakened Option Flows, but Room For Limited Gains
Weekly Recap:
● Markets lost ground before consolidating on the lows
● The JPM collar support from last Q is gone
● This increases downside vulnerability
● We look to sell rallies and potentially making new yearly lows
Market Abstract:
Last week was the end of the Q2 JPM collar trade and therefore the reduction in market support as hedging flows have abated. While the SPY only lost just over 2% on the week, it was the increase in negative deltas that portends where flows are pointing.
While we do have a shortened trading week and low liquidity, we expect some volatility this week, potentially after a slow start.
While there was low conviction to end last week, negative gamma persists and should keep pressure on the markets.
Last week we started just a few hundred million in terms of negative gamma, but that got pushed up past the $1B mark, eventually settling on around -$900M.
SPY saw a buildup of calls around 380 to end the week while puts around 380 were reduced. Meanwhile, the buildup in puts occurred at 370 and continues to keep strong OI between 370 and 350 with the latter being a downside target for the Jul op-ex or Jul FOMC.