Good Morning,
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Dealer positioning improved last Friday, leaving SPX just shy of the gamma flipping point at the 5118 strike. Even though dealers are still slightly negative, they are fairly well hedged at the current levels, implying their hedging flows will have a smaller impact on the S&P 500.
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However, the steepness of the gamma curve between the 5100 and 5000 strike suggests a slippery slope back down to the 5000 level on any weakness, which is about 2% below.
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On the other hand, our PV bands have opened up some further room towards the upside, landing just shy of the 5150 strike. This suggests higher is still possible, albeit, only for around a 1% gain.
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In any case, we suspect the 5100 level will remain the focal point over the next few days, especially given there is a significant amount of positive gamma tied to that strike, which makes it a prime candidate for some "pinning" action, which consequently should cause some near-term resistance.
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Overall, the setup is more favorable than the previous two weeks, although until we move significantly past the 5100 strike, higher volatility is still on the table.
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-Tier1 Alpha
