Stocks had another choppy session today, but that will likely change tomorrow with the passing of quarterly options expiration. The market has been pinned between 5,600 and 5,700 all week. However, tomorrow, gamma levels will begin resetting at the open as monthly index options expire.
The 5,600 level will no longer be the dominant put position on the board next week, shifting instead to 5,500. As a result, it’s quite possible that the sell-off, which paused this past week, resumes next week—at least based on today’s data.
Also, for now, the S&P 500 continues to remain below the 10-day exponential moving average, which has been serving as a reliable resistance level during this drop.
In other news, the prices paid indexes for the Empire State and Philly Fed continued to rise in March. Both have returned to levels last seen in the summer of 2022.
This data puts us in a challenging position. On the one hand, we have data suggesting inflation remains a significant problem, while on the other, the Trump administration continues to claim it will implement policies to lower rates. I’m not even sure stagflation would bring rates down on the back end of the curve—the only thing that can lower both rates and prices is a recession.
Japan was closed yesterday for the Vernal Equinox—yes, it’s officially spring, even if it doesn’t feel like it. More importantly, Japan will reopen tonight, and it will be interesting to see how the market trades post-BOJ, primarily how the bond market responds to a reasonably dovish stance on long-term rates rising. This will be particularly relevant with the CPI report due at 7:30 PM ET.
Anyway, see you Sunday.
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Originally Posted March 20, 2025 – The Pinning Effect in the S&P 500 Ends Tomorrow
Terms by ChatGPT:
1.Gamma Levels – In options trading, gamma measures the rate of change of an option’s delta relative to changes in the underlying asset price. When “gamma levels reset,” it refers to changes in market positioning due to options expiration, which can impact volatility.
2.Quarterly Option Expiration – The expiration of stock and index options that occurs on the third Friday of March, June, September, and December. These expirations can lead to increased market volatility and repositioning of trades.
3.Monthly Index Options Expiration – The expiration of options tied to stock indexes, which happens on a monthly basis. This can trigger significant repositioning in the market.
4.Pinned Market – A market condition where a stock or index remains within a narrow price range due to significant open options positions at certain strike prices.
5.Back End of the Curve – Refers to the longer-dated maturities on the yield curve (e.g., 10-year and 30-year Treasury bonds). Movements in this part of the curve impact long-term borrowing costs and are influenced by inflation expectations and Federal Reserve policy.
6.Prices Paid Index (Empire State & Philly Fed Indexes) – A component of regional manufacturing surveys that measures changes in input costs for businesses. Rising values indicate increasing inflationary pressure.
7.BOJ Post-Meeting Market Reaction – This refers to how Japan’s financial markets respond to policy decisions made by the Bank of Japan (BOJ), particularly regarding interest rates and bond-buying programs.
8.Dovish Tone – A term used in monetary policy discussions to describe a central bank’s preference for maintaining lower interest rates and providing accommodative financial conditions to support growth.
9.Stagflation – A rare economic condition where high inflation persists alongside slow economic growth and high unemployment. It presents a challenge for policymakers, as traditional tools to combat inflation can further slow growth.
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