Goldman Sachs Chart of the Day: Gamma Wall

“It feels like SPX keeps failing at SPX 7,000…”

  1. One reason for this is the extreme SPX gamma positioning by market makers. Goldman Sachs futures strategists estimate $6 billion of long gamma at spot, which increases to $12 billion of long gamma if SPX moves 100bps higher.

  2. In simpler terms, a 100bps rally in SPX cash triggers market makers to supply approximately 35,000 e-minis.

  3. According to the GS volatility desk, the 7,000 strike represents the peak concentration of gamma. Beyond this level, while the market doesn’t necessarily “flip short,” the dynamics become significantly cleaner.

  4. To capitalize on a potential upside breakout, the cost of a 2-week SPX 102.5 call is currently trading at historic lows (link).

If a fundamental catalyst is required to push through the 7,000 level, this week’s megacap earnings could provide the necessary momentum.