Gamma “Call Wall” At 3,600 Means Dealers Will Sell S&P Breakouts

Usually dealers are blamed when they are in a negative gamma position and are forced to sell down risk during sharp market drawdowns, thereby accelerating market drops. Well, this time it’s the opposite: with stocks attempting to stage a breakout above 3,600, it will be the dealers that hold the S&P back, due to a peak gamma position which our friends at SpotGamma calculate is at 3,600.

In their morning note, SpotGamma writes that its 3600 target appears to have been achieved as futures are markedly higher at 3615 on the back of the positive Moderna news.

As such, with 3,600 remaining the largest gamma strike and is a level that should remain into play through 11/20, it will likely impose a cap on how high the S&P can rise as dealers sell into any breakout.

Furthermore, as it is expiration week SpotGamma generally looks for low volatility levels as SPX dealer flow tightens around large OI strikes. Those strikes for Fridays monthly OPEX are 3500, 3550 and 3600, which hints at even more potential selling should we stage a powerful reflationary rally.

Additionally, the Call Wall remains at 3600 which suggests is a resistance/pin point.

This all suggests to SpotGamma that “over 3600 the market is possibly overextended, and unless there is some material news we would anticipate a reversion back into the 3500-3600 zone much like last week. However, if the Call Wall rolls higher it would confirm these higher prices.”

For today, the key SPX levels to watch are 3,635 which is a major resistance line with support at 3609 and 3584.

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