Good Morning Income Hunters,

Gamma remains in positive territory (+1.27) after last Friday’s quick reversal of the downturn that began at the end of July. The Gamma index reveals the volatility regime we are trading. Its range goes from -4 (highest negative gamma) to +4 (highest positive gamma) … 

The trend in the index becomes more important heading into monthly expiry (SEP15) because gamma’s impact on options positions is greatest as the market approaches expiration.

OpEx forces dealers to rebalance their stock hedges faster as their option book grows and time to expiry shrinks.  Then wham on expiry the options expiry and their stock hedges must be closed … 

So, the trend in gamma that develops next week is critical into the week of OpEx (9/11) when the focus shifts for the options dealers to where they want to “PIN” the indices to minimize OpEx hedge risk.

Now the question becomes do we stay in this grind higher positive gamma environment … 

OR does the options flow shift next week when the institutional players and longer-term investors are back in full swing? 

PUTs are Historically Cheap

The Risk Reversal indicator measures the relative value of 25 delta puts & calls. The higher the level the cheaper the puts are relative to calls … Notice in the below chart that puts are cheaper now than the market was last at these levels. 

For today’s trade … 

SPX Resistance is at 4,550 – 4,560 (major resistance is SPY 455), 4,600 is now the top of the range with the SPX call wall shifting to 4600. 

SPX Support is at 4,525 (SPY 452) & 4,510 (SPY 450) & 4,500. 

There is a support gap below 4,500 to 4,450.

For QQQ the Call Wall remains at 385, with the first resistance at 380. Support below shows at 378 & 375.

With employment data softer than expected based on wage growth and a higher unemployment rate higher but Powell is still far from the goal of 4% unemployment so it will be interesting if the 10-year yield can break down from here. 

The markets are pricing out the last Fed rate hike … 

If you are a Win the Week member, please join me at 1 p.m. for a full recap of the data and trade ideas heading into next week …

Here are today’s Gamma levels for our core watch list.

Good luck today,

Griff