Good Morning,
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Dealers remain in a neutral setup, which implies they are broadly well-hedged around the current levels. However, market makers are still broadly short-gamma, as our GEX flipping point shifted higher to the 5136 level.
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The 5100 strike is expected to remain the focal point in the near term. However, we want to reiterate the steepness of our Gamma curve, which indicates that a quick visit to the 5000 strike is still a possibility.
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Structurally, if the market moves lower, dealers would be forced to aggressively sell futures to hedge their delta exposure, likely accelerating the move back down to those levels.
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We're not sure if that bearish setup will materialize or not, but at this point, we cannot rule it out either, so stay cautious of any downside moves.
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Surprisingly, SPX options volume was exceptionally low yesterday, which we believe contributed to a modest rise in fixed strike volatility.
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When liquidity is poor, bid-ask spreads on options contracts tend to widen as market makers increase spreads to compensate for the increased risk they face, which ultimately can drive implied volatility levels higher.
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-Tier1 Alpha
