It’s Fry-Day — and It’s a Big Expiration

Don’t forget about the rebalance

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Our View

After the 50-point selloff yesterday, the ES recovered 25 points. Why did it bounce so much? 

The first part is, the 4750 support area and the second part is the December Triple Witching expiration.

According to SpotGamma: “FYI it’s a huge OPEX tomorrow, but if you see ‘$5 trillion’ expiring tomorrow that’s a 13F style calculation…1 contract = 100 shares of notional value. The absolute delta across everything is closer to $1.3tn, and obviously a good chunk of that nets out.” 

This is what everything comes down to now and why the FRyday option expirations have gained so much attention — especially when you have “$5 trillion” expiring. That’s all I have to say about that!

Our Lean

I think yesterday was a knockdown reload for today. I did end up selling the early rally yesterday after the open — as we talked about in the Lean — but I only made a little on the NQ and, I hate to say it, but I got stopped out on my ES short on the last bounce up to the highs and from there it was rough goings until I got long a few times late it in the day. 

The point is that at some point today, there should be a drop and if it’s 8 to 12 points lower down to the VWAP, I’ll be looking to buy. I am currently long 1 ES.

Don’t forget, aside from the large expiration, we also have a rebalance for the S&P 500 and Nasdaq. 

For those of you who like HandelStats levels, here they are: 

MiM and Daily Recap 

The ES traded up to 4790.00 on Globex and traded 4779.00 on Thursday’s regular session open. After the open, the ES traded up to 4788.75 at 9:34, then traded up to 4791.75 at 9:48 and then sold off down to 4791.00 at 10:40. From there, it back-and-filled for the next 10 minutes and then rallied up to a lower high at 4783.00 at 10:56. After the pop, the ES sold back off down to 4769.00, back-and-filled for the next 20 minutes and rallied up to 4781.75 at 12:01 and then made a series of four separate new highs up to 4788.00 at 12:51. 

The ES was then hit by a sell program that dropped the ES down 19 points into 4766.00 at 1:07, did another small back-and-fill pattern and puked down to a new low at 4746.25 at 2:54, traded 4771.00 at 3:30 and traded 4767.75 as the 3:50 NYSE cash imbalance showed $350 million to buy. The ES traded 4774.00 on the 4:00 cash close. After 4:00, the ES pulled back a few points and settled at 4768.50 on the 5:00 futures close, up 10 points or 0.21% on the day.

In the end, I said in the MTS chat very early that I thought the ES was going to pullback and then rally again during Friday’s December Triple Witching expiration. That said, it was easier said than done. In terms of the ES’s overall tone, it felt and acted overbought after the gap-up open. In terms of the ES’s overall trade, volume was high: 401k traded on Globex and 1.548 million traded on the day session for a total of 1.951 million contracts traded. 

Technical Edge 

Guest Post

SpotGamma is one the the shining stars of the options markets. If you have never heard of them or already know of them and have never signed up for their options flow products or the SG Academy, I fully suggest you check them out and add them to your trader’s toolbox.

Here’s a snippet from them:

The current gamma landscape has that pin at 4700. As of today, the longstanding pin at 4600 has been toppled. The large gamma at 5000 has also grown, which is the mechanical effect of the price becoming closer to it in conjunction with new calls filling in. 4800 is now a respectable level but 4900 is still inert. With this polarity, the safer bet is to plan for the price to fall into 4700’s gravitational orbit. However, if prices rally into blue skies, such as a in a post-witching melt up (perhaps taking a few days), then the price can feasibly scream to 5000. This is despite 4800 being the next logical Call Wall candidate. Volatility is bidirectional, and this bidirectional threat at a large price displacement (in each direction) is a threat to credit spreads of all types. This is something worth keeping in mind as we approach this jump. 

ES 

Levels from HandelStats.com

NQ 

Economic Calendar

Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!