A “Window For Volatility To Expand” – Downside Risk In The S&P Accelerates Below These Levels

US equity futures are weak (but not terribly so) ahead of the open despite many on “tail risk” watch with the news out of Afghanistan.

There is a window here for volatility to expand, primarily around OPEX and Fed hedging. The Afghanistan events certainly introduce uncertainty if nothing else, and maybe that is enough to allow volatility to make a real push. As SpotGamma notes, if “risk off” manifests we still mark 4430 as a major downside inflection point into 8/20 expiration.

Gamma starts off at a rather high level, and as you can see below from SpotGamma’s vanna chart, dealer resistance builds into 4500.

4500 is also our SPX Call Wall and the top of our range, but its important to note the SPY Call Wall is at 445. Therefore we think the 4465 SPX level is where the big resistance starts, and that seems to lower the odds of a 4500 test in the next few sessions. We think its unlikely 4500 is broken before 8/20 expiration.

However, SpotGamma warns that the main issue here is that gamma deteriorates rather quickly to the downside.

The official gamma flip line is at 4420, but we see 4439 support as critical. A break of 4439 likely invokes a quick test of 4400 due to dealer gamma selling.

There is a decent amount of gamma positioned at 4400, and we think that is sticky for this session.