SPX and USO Weekly GEX & IV Analysis – October 7, 2024

This week, we’re focusing on SPX options market gamma exposures and their impact on price movements.

This week, we’re focusing on SPX options market gamma exposures and their impact on price movements. It’s important to note that the horizontal GEX levels shown on the chart are not yet part of the TanukiTrade.com indicator package, but they are expected to be officially introduced by the end of October. Here’s a sneak peek!

Call Resistance Levels and Put Support Zones

• 5800 level (5 DTE): This is the biggest call resistance level this week. The market is trading close to this price, and if it cannot break through, buying pressure may dry up, leading to increased selling pressure. If broken, significant upside movement could follow.

• 5750 level (5 DTE): This is the second key resistance level that the market is currently testing. If price breaks above this level, it could continue toward the 5800 level.

• 5650 PUT support (0 DTE): A critical put support level for daily options. Breaking through this zone could increase volatility and accelerate selling pressure.

• 5600 PUT support (5 DTE): This is a longer-term support level, and it will be difficult for the price to break through without heavy selling pressure.

  

Options Indicator Analysis

The Options Oscillator Pro at the bottom of the chart shows several key metrics:

• IVR (Implied Volatility Rank): Currently at 28.9, indicating moderately low volatility in the market. This suggests price movements may remain more stable throughout the week.

• Aggregate IVX: The IVX curve and its 5-day rolling window change are displayed alongside the purple-labeled IVX value. This helps track volatility dynamics. Recent changes show a 2.2% increase in IVX, indicating that while options market volatility has risen, selling pressure has eased.

• Call/Put Pricing Skew: The skew indicator at the bottom shows that the market currently sees more risk to the downside, with the Put skew at 87.6%, examining the put skew for the optimal monthly expiration (currently November 15).

The Options Overlay Pro indicator provides additional important information:

• The two blue curves represent the 16-delta OTM distance. These bell-shaped curves indicate the out-of-the-money options zones, within which, based on the current options chain pricing, the price has a 68% probability of staying by expiration. (Note that this skew is shifted downward due to the high put pricing skew.)

• The expiry table shows the call/put pricing skew across different expirations, which is crucial for understanding volatility shifts. It clearly indicates a put pricing skew across all expirations, suggesting that a downward move could occur more rapidly than an upward one, as priced in by the options chain.

• IV differentials can reveal optimal time spread strategies, especially when there are significant IV differences between expirations. Currently, this is between the 10/11 and 10/14 expirations. (Last week, I opened a CALL DIAGONAL in a similar situation and successfully closed it for a $500 profit.)

• The chart also displays the +1/8 and 8/8 levels from the grid system, which are key this week as they fall within the call and put resistance zones. Around the 5750 and 5800 levels, these Murray Math levels serve as crucial technical points that can help identify potential turning points.

SPX Summary:

• Price is hovering between the 5750 and 5800 levels, where key call resistance levels are expected to hold.

• The 5650 and 5600 put support zones will be crucial for determining how deep any pullback could go and where buyers might step in.

• Current volatility and skew indicate the market is pricing in higher risk to the downside, but the softening of volatility suggests less aggressive price moves in the near term.

• Current environment is good for credit or debit call diagonals, or double calendar strategies

Technical Analysis : USO

As the price broke above the 4/8 Murray Math level, the call skew surged significantly. Based on the GEX levels, the critical levels shown on the chart are important to watch. The IV is continuously rising, with this increase being primarily concentrated on the call side, which is clearly visible through the distorted 16-delta curve. The expiry table shows a very strong call skew across all expirations, where the call options at the same distance cost twice as much as the put options.

USO Summary

The combination of events – a breakout, IV explosion, increased volume, and the call skew – clearly indicates a strong bullish investor sentiment.

This environment is good for call broken-wing butterflies, call ratio spreads, or even for call time spreads (with positive delta) if the IV continues to rise

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Best Regards,

Gregory Peter Szilagyi
Founder of TanukiTrade Options

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