Market insight June 7

Market insight June 7


Recently, the market has had low realized volatility, indicating that it has not changed as much as in the past. Despite considerable intraday volatility, meaning that there is a great deal of fluctuation throughout the day, this is the case.

The SPX500 $4000 strike is no longer the dominant strike, indicating consolidating the market.

SPX50 Put/Call Gamma Levels By Strike -- All Expirations

The most likely explanation for the current market trend is that CTA's are selling, but inflows from retail investors are offsetting this. So long as the jobs market remains strong, it's likely that 401k inflows will continue.

What are CTA's?
CTA's are Commodity Trading Advisors.

The increase of negative gamma below the $4100 strike price level suggests that volatility will increase. The $4000 level remains critical support going into OPEX, but it is unlikely to be tested today.

You can see the slow of the negative gamma starting to steepen around $4100

Estimated SPX500 Dealer Gamma Exposure

For now, I think we will still range between $4100 - $4200

SPY Gamma asymmetry

The situation with the SPY ETF Market is that it is not currently trending in either direction in the short term. That means that those holding long positions in the market will need to sell deltas on any upticks to stay profitable, while those holding short positions will need to buy deltas if the market moves lower.

Estimated SPY ETF Dealer Gamma Exposure - All expirations
Gamma asymmetry
refers to the fact that long positions in the market need selling deltas on upticks to balance the long gamma position, but short positions only require buying deltas on downticks.
That imbalance occurs because long positions have positive gamma. They will gain value if the market moves in their favor.
Still, short positions have negative gamma. They will lose value if the market moves against them.

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