Hey There Income Hunter,
The S&P 500 Volatility Index (Ticker: VIX) made a new year-to-date low last week, which is pretty extraordinary when you consider the macro forces at work including ..
- US small businesses facing the worst credit crunch in a decade
- US budget deficit hitting $1.1 trillion in first half fiscal year
- De-dollarization is picking up steam
- Japanese insurers are planning on liquidating foreign debt
So, why is the VIX so calm in the face of such turbulence in the economy?
Read on to find out.
Stocks Remain Well Bid
Last week, the S&P 500 (Ticker: SPX) put in another higher high since the 3808 low on March 13.
So, the trend continues higher until we see a close below 4070, which would break the series of higher lows and higher highs.
Winds of Change
One change in bullish sentiment last week was that the largest positive open interest call strike (call wall) shifted lower from 4200 down to 4150. This is a bearish sign since it signals that traders net sold calls on Friday.
As you can see below, there was also a drop in the largest negative open interest put strike (put wall) down to 3900, which signals more puts being bought.
The negative impact of the buying of puts and calls could signal a turn in the market …
Especially as all the positive option delta that has built up over the past few weeks expired Friday.
The call dominated April 21 OpEx wipes out the large net call positions and option dealers who are short the calls and long stock to delta-hedge their book, must sell their stock.
Option Positioning Is a Critical Signpost
We’re now in a monthly option cycle that will take us through the Fed meeting on May 3 and will end at the May 19 expiration.
The next couple of weeks should ignite a breakout in the markets either above 4200 or below the 4070 level.
We have seen our first shift in the call wall lower so watching the changes in option positioning this week is key. Here are the current critical option positioning strikes as calculated by SpotGamma ….
To start the week, 4135 is resistance and 4150 is major resistance. Support is at 4125 and then 4100.
Stay tuned for more insight on option positioning and its impact on the S&P complex.
In particular, keep an eye out for the GAMMA BOMB that Mark Sebastian has identified.
Live and Trade With Passion My Friend,
Griff