The SPX an expiry that should make everyone nervous, but won’t.
Nb. Our comment from 12/12/19
The static zone is but a minor concern, as with so much Y ratio around it will move, it is really just a matter of when.
As we have mentioned the Dec expiry is the biggest of the big, and considering the volumes we are seeing this year, it could actually beat last year, making it one of the biggest ever.
However, one of the drawbacks of this gargantuan volume, is that it doesn’t move very quickly, hence the static zone.
Furthermore, it is just as well it keeps knocking on the R3 door, as if it got a shock, as things stand, the zone at 2995-3005 is a very long way away indeed, and nothing but Y ratio in-between, and for a triple, that is tantamount to no ratio, which means no support.
Again, and as we mentioned last time, that this market has been to 3155 before (3154.26 on 27th Nov), and despite it remaining at R3, you know the market knows what to expect should it go there again.
Additionally, you also know, that with R2 slipping 25-points, and DR 10-points, either side of it, that the ratios above the zone are in full retreat mode, so don’t expect it to hold for much longer.
Therefore, it might be worth knowing that 3175 is what we call a “step-up”, so that will soon become the next R3 level.
Past experience suggests to us, that in, or by, next week’s rollover and expiry, the zone will settle at 3095-3105, which is still a way below the current market, so please bear this in mind, especially as the rollover is now but 4 trading days away.
Range: 3130 to 3155
Nb. Our comment on 12/18/19
It is exactly this sort of expiry that should make the regulators very nervous indeed, but pound to a penny they are totally ignorant of the inherent risk over the remainder of this week.
Of course, they should be, and by not being, makes it seem all the worse should anything happen.
It is not the zone, well not entirely, as it will move to 3095-3105, even though this is still 100-points below the market.
However, 4% is not really that big an issue.
It is more to do with why, or how, this expiry has evolved, as it never really retrenched.
But, at the same time, the ratio below the zone hasn’t built up sufficiently to get the zone moving upwards.
Rather, it has been the capitulating ratio, where the market has been knocking on the “ratio door” all the way up, almost sucking this market higher.
Also, it hasn’t quite made the biggest expiry ever by volume, basically because a lot of call activity has been cashing in (hence the capitulating ratio), but going the other way, where it has been very decent activity, just not enough to shift the zone.
This means only one thing, lots of short sellers of way OTM puts thinking its easy money.
This is why they should be very nervous, irrespective of the fact the corresponding R3 doesn’t appear until 2895, and that is a percent that would scare most.
May well pass unnoticed, but that doesn’t mean one should ignore the risk.