A very SPX expensive Mch expiry for some, and a first look at Apr.
Nb. March Expiry
We thought people might be interested in the final ratio reckoning of the triple witching March expiry, where the eventual settlement price was 2437.98.
That is one really big OUCH.
In our last comment we mentioned that in these big expiries, back in the day, going from B1 to B1 was quite common.
However, what was uncommon, was that there was such a gargantuan Y ratio bandwidth, ending at an astonishing 400-points wide.
We also mentioned, repeatedly, that an 8% to 10% move was very probable, although, and holding our hand up here, we never envisaged a rout such as we have had.
Although, once you have dropped several hundred points through the minimal Y ratio then there is a natural degree of momentum, couple that with the lack of the high end of ratio, and yeah, we can see how it happened.
Nevertheless, finishing in B1 is going to hurt, as the real kicker, was the total lack of any recovery into the more minor levels of ratio for the expiry.
And, although not in the table above, the fact that B2 finished at 2420, we suspect that in the end the market did exceptionally well to finish above this.
All very expensive, but hopefully now we enter into an intermediary expiry, things may quieten down a bit, but with nerves so frazzled, we suspect it would be better to be entering a triple rather than exiting one at this present moment in time.
Range: 2420 to 2615
Type: On balance only just bullish
Nb. April Expiry
We are going to start the April commentary with a reminder of what we said at the end of our last one; “Virus aside, any market that takes on the dynamic delta that occurs when it interacts with the DR ratio, in this case futures buying, is a market that has that many futures to sell to meet that demand, so worth bearing this in mind.
At the end of the day, if the market is happy to supply enough to meet this naturally occurring demand, then it will not have any effect, which will only come when that demand outstrips the supply”.
The point being, is that it doesn’t matter how much dynamic delta is generated until this is greater than the markets appetite.
And currently this market is ravenous, and fuelled by extreme emotion, so worth remembering.
However, there are a few points to take away, the first being that the zone is rather bizarrely, actually higher than March’s was.
Secondly, the Y ratio bandwidth is now a ridiculous 490-points.
Thirdly, we are now in an intermediary expiry, so everything, under normal circumstances, should quieten down.
Finally, and again, under normal conditions, the market should become more sensitive to lower ratios. As in we mentioned that in a triple it was not unknown for it to trade between the B ratios, well, in an intermediary, this normally changes to mid R ratios.
Actually, there is one other point, which is that this market is now as vulnerable to a crash-up as it once was to a downward correction, as bizarre as that may seem.
And, although we haven’t mentioned it for a while, we do strongly feel that the regulators should have been aware of how overstretched this market had become, and should have taken pre-emptive action, as they had at least two months warning to do something, if only a warning, so shame on them.