SPX June; equities vs derivatives

Seems like we have a street fight on our hands in the SPX...ding ding...round 1

Nb. Our comment for 06/13/23


The SPX has definitely become fixated with R2, and has most certainly continued to “knock on the retreating door of R2”.

Although, when one drills down into the data, it is not quite as vanilla as it looks.

First things first though, and last week was all about the levels we mentioned. On the day we published 4270 had its affect first thing, but then it swiftly changed to 4280.

Then the next two days were all about 4305, which gave way on Friday, also strike three of course.

What we also mentioned last week, was this week it is the rollover and expiry. The first of which is tomorrow.

So, this is where it now becomes very interesting.

Basically, the zone hasn’t moved. Although, yesterday and today we have seen 4150 state a really strong claim. However, please note that this is still a long way below where the market is now, despite it being a lot higher than 4000. However, from past experience and with Y2 now stretching all the way up to 4305, it has happened in the past that the zone ends up at 4295-4305 come Friday.

The odd part is that today and yesterday, the ratios have started falling beneath the current zone. So much so in fact, that R1 has reappeared down there.

Putting this aside, and seeing how aggressive this index has been last week and, so far this week, it means it looks like a good old fashioned street fight between equities and derivatives.

Equities have obviously taken to heart no rate rise, so either derivatives adapt or end up losing some serious money.

As you can see R2 now starts at 4330 (below where the market closed), so there is a step up at 4355 and then again at 4405. But, at the end of the day, the SPX is going to have to absorb an awful lot of dynamic delta futures, especially this close to the rollover, so decide whom to back…equities or derivatives, simple.


Range:            4305  to  (4355 & 4405) 4505           

Activity:          Very poor

Type:              Bearish




Nb. Our comment from the 06/06/23


As compliant as the FTSE is being here, on the other side of the pond, the SPX is being rather aggressive.

We did point out last week that sometimes this index can “get a bee in its bonnet” and, we did suspect as much, otherwise we would not have mentioned it.

Essentially, it was looking for a fight, or that was the way it appeared to us at least.

To be fair, it needed something to give it a shake as, up until the middle of last week, the SPX had gone absolutely nowhere. It started this expiry by opening at 4190.78 and by last Wednesday 1st it had closed at 4179.83.

The only question that remains, is whether or not it has now bitten off more than it can chew…or more precisely, more futures than it can handle courtesy of the dynamic delta that comes with encountering R2 ratio level.

Judging by the reaction yesterday, when it should have “sobered up”, the answer is yes, it looks decidedly uncomfortably with this many futures coming out onto the market.

Luckily, for the market, by shaking things up a bit then we are seeing the ratios above the zone recede quite quickly now.

Amazingly though, the actual zone itself hasn’t moved.

Obviously, today R2 starts at 4270 but, by the end of play we would expect it to have slipped to 4280. Then, during the week, it will slip further to 4305.

The SPX can of course continue to knock on the retreating door of R2 but, next week is the rollover and expiry, and where that will end up is going to become increasingly important.

So, enjoy it while you can, but we feel the bulk of the upside potential has been achieved for this expiry and the downside risk only grows.


Range:            4005  to  4270 (4305)           

Activity:          Poor

Type:              On balance only just bearish



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June 13th, 2023 by