$SPX: A Look at the Options Data from Friday, Dec 6

Key Points

    • Long gamma continues to suppress volatility, although GJR-GARCH predicts a small increase in volatility on Monday.
    • Current levels of long gamma exposure support MMs buying as prices decline and selling as prices rise.
    • Estimated level where long gamma could flip to short gamma, accelerating selling and incentivizing CTAs to monetize profits: 3082-3065 (highest OI at 3075).

Implied Move (blue lines):

    • 3185.00 High
    • 3106.50 Low

In the absence of a macro shock:

    • Level to sell calls (shaded red):  3200 (prob touch ~36%)
    • Level to sell puts (shaded red):  3100 (prob touch ~56%) [past]

Current probability of price declining to gamma “flip” point at 3075 (shaded yellow):  ~15%

Friday’s large lot trades:

    • 1800 puts previously sold at 3100 partially covered (bearish)
    • 2700 calls sold at 3200 at day’s high (bearish)

On News Algos

In this implementation of the S&P futures’ long-short algo, low latency trades are assigned a color. Low-latency liquidity-consuming algos respond to news generated events in the millisecond environment. The price impact of some recent events are highlighted.

SPX options activity bullish.

Today’s options activity was decidedly bullish. Calls underpriced avg 12%, bought at intraday lows, marked at offer. Puts overpriced avg 7%, sold at intraday highs, marked at bid. Call volume today exceeded put volume. Most active options (Dec expiry) shown here.

DIX-GEX: A Freight Train Coming Through the Fog

Simultaneous selling by dark pools and significant changes in GEX have proven value in forecasting market down-turns in $SPX. (…more)

On Wednesday, November 27, the DIX put in a second day indicative of selling by off-exchange market participants.  Simultaneously, GEX hit an aberrant high of 8.22. This value was exceeded only twice within 2,157 data points (9/21/12 @ 8.99 and 11/15/13 @ 8.99).

I looked at the forecasting value of high GEX signals > 6 and, by themselves, the forecast potential was lacking. However, when I queried the database for GEX values greater than 7, the combination of low DIX and high GEX occurred eight times and appeared significant.

First, nearly all of the high GEX readings were linked to dark pools’ selling into rallies that were already long in the tooth. Second, all of the signals resulted in significant down-turns …about one month later.

Of the eight occurrences, some were redundant, leaving effectively four coincident signals …that is, four times when low DIX/high GEX forewarned of a relatively imminent and consequential correction.

Bottom line

The combination of low DIX and high GEX (>7)  appeared, on average, 35 days before a market decline of about 6%.


    • This analysis suggests we are seeing early signs of an ensuing correction in the equity markets.
    • Going forward, a watchful eye on dark pool selling and lookout for more negative changes in gamma exposure will be important.
    • While these coincident signals in DIX and GEX have been associated with an increase in volatility, they have previously provided adequate time to re-balance and hedge long equity positions.
    • While no market timing system works all of the time, investors who follow a quantitative model have been shown to outperform over long periods and reduce exposure to tail risk.

Dark Pools Were Sellers Today


Today’s DIX value is the first significant indication that off-exchange participants were liquidating long positions, since September 30, 2019.

A few months ago, I analyzed DIX-GEX sell signals, retrospectively, here. Among the findings, DIX values below 0.39 clustered during the late phase of ascending auctions. As markets, whose rally was long in the tooth, rose further dark pool selling printed ahead of the inflection point.

The true positive rate for sell signals was 101/122 (83%). Only one rally climaxed ahead of a significant market correction without DIX-GEX signaling (Spring 2012).

Gamma Exposure

Noteworthy in today’s options trading was the volume in protective puts at the 3125 and 3130 strikes in SPX December expiry.

Taken together, we might expect further upside …but we’re currently seeing the first substantive signs of an ensuing inflection point.