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$1.4 Trillion of SPX Notionals Due to Expire

Stock-Markets / Stock Market 2017 Mar 17, 2017 - 02:03 PM GMT

By: Anthony_Cherniawski

Stock-Markets

SPX futures are flat going into Quad Witching options expiration. The action is likely to begin in the final minutes before the market opens as traders square away their positions.

ZeroHedge reports, “A quiet start to today's quad-witching St. Patrick's day, with European stocks mixed, Asian shares and U.S. index futures (-0.1%) little changed ahead of industrial production data with just Tiffany's set to report earnings.”


But what’s underneath the surface is what may affect the future bias of the SPX. Options breakeven appears to be right at 2350.00, near where we see the head & Shoulders neckline. Should SPX decline beneath that zone, options dealers may have to “gamma hedge,” which means they must sell the index to pay off the puts that come due today.

This goes for SPY options as well as index options.

There has been a clear suppression of volatility at the market heads into OpEx. But the tilt toward calls has declined since last month’s OpEx.

ZeroHedge reports, “However, if JPMorgan's equity derivative strategists are right, today's 'quad-witch' - with $1.4 trillion worth of S&P 500 notional set to expire - could lead to a vicious cycle higher in volatility going forward. It is notable that VIX has been entirely decoupled from stocks for over 6 weeks now.”

TNX appears poised to continue its decline. We may see some whipsaw this morning before it resumes course.

USD may have its Master Cycle low today (day 259) with the beginnings of a bounce from a morning low of 99.97. If so, we may see the USD bounce to its 50-day Moving Average at 100.98.

However, the EW pattern does not appear to be complete. An alternate view is that USD is likely to decline with SPX into next week. It is more likely to see a Master Cycle low at or even beneath a major support area, such as the mid-Cycle support at 98.57.

Gold appears to be completing its bounce and may join stocks to the downside. It completed a 56% retracement as of yesterday’s close. Although it is positive this morning, it has not exceeded yesterday’s high.

While Wednesday’s comment was technically correct, I did not allow for Gold to extend its rally beyond the 50-day Moving Average which appeared to be strong resistance.

Regards,

Tony

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As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals.

Disclaimer: The content in this article is written for educational and informational purposes only.  There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

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