SPX Gamma Wrap
The SPX moved 0.7 percent higher on Monday due to media reports, that Russia is prepared to allow Ukraine to join the EU as long as it doesn't join Nato and that discussions on territory could pushed to a later date.
Growth concerns attributed to Shanghai announcing a two-phase Covid lockdown intensified meanwhile and caused WTI to fall over six percent, while the yield curve flattened (2Y up five basis points, 10Y down two basis points).
The market stalled at 4575, which is the last gamma resistance before 4600, the strike with the highest amount of open interest, and a staggering 92MM of gamma notional, which is also due to the short-term nature of those calls.
The majority of those contracts are sold by investors to finance their put protections, and bought by dealers, who hedge their long call position by selling futures. If the index moves higher and those calls move into the money dealers have to sell more futures, which makes 4600 a major resistance level and possibly a short-term pin as about 50MM of gamma at that strike is expiring over the next days.
Total dealer gamma increased by 130MM to 341MM, and the gamma inversion level remains true at 4504.
PS: I want to point out that a major geopolitical issue (rubles for energy) is still unresolved and could hit hard in the near future, as the EU including Germany are not willing to give in to Russian demands, as they have confirmed today.
Growth concerns attributed to Shanghai announcing a two-phase Covid lockdown intensified meanwhile and caused WTI to fall over six percent, while the yield curve flattened (2Y up five basis points, 10Y down two basis points).
The market stalled at 4575, which is the last gamma resistance before 4600, the strike with the highest amount of open interest, and a staggering 92MM of gamma notional, which is also due to the short-term nature of those calls.
The majority of those contracts are sold by investors to finance their put protections, and bought by dealers, who hedge their long call position by selling futures. If the index moves higher and those calls move into the money dealers have to sell more futures, which makes 4600 a major resistance level and possibly a short-term pin as about 50MM of gamma at that strike is expiring over the next days.
Total dealer gamma increased by 130MM to 341MM, and the gamma inversion level remains true at 4504.
PS: I want to point out that a major geopolitical issue (rubles for energy) is still unresolved and could hit hard in the near future, as the EU including Germany are not willing to give in to Russian demands, as they have confirmed today.
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