March 14, 2023 SPX, SPY, ES Trade Plan
CPI Day!
Good evening traders. An incredible 100+ swing overnight yielded us a very lackluster and choppy day in the market. Our next trading session brings us CPI day and besides knowing the levels and reacting to them one-by-one expect volatility and traps to come your way.
If I was predicting I think we may get a more neutral to even warm CPI that could drop us, but the market sees support and rallies from it. Why? The Pause! After the past weeks news of the bank failures and the incredible drop in the FED Fund Rates, the market now expects - even could say demands - that a Pause and potentially a Pivot is coming.
Don’t believe me? See below. The blue line with the yellow arrows shows you after today’s action the market expects the FEDs to make a pause this year and a cut of rates into the second half of the year. Compare this to 3/8 (the ligher color at the very top) which had us increasing rates through the end of this year and then a cut of rates next year.
This is why next weeks FOMC is going to be lights out to the market if it doesn’t expect to get what it wants.
Last session trading recap
See the below Tweet for our trade idea. We took calls and I want to call out to the team that just as important as Volland is to our trade plans, I am a huge fan of the Quant Data platform. As I was tweeting this morning it provides you with a real time look into the options market net flow - ie calls and puts being bought and sold - while also providing dark pool levels and such.
I have a 7-day free trial I can provide by following this link. Try it yourself and reach out with any questions and visit the Quant Data YouTube for more tutorials and such.
If you also take a look from Quant Data you can see at the open we had spikes of put bids = selling of puts. If you coupled this data with the vanna levels shared we hit a key level and that with it a reversal. What did we say?
3820-3810 is a cluster of negative vanna’s - acting as repellent
As I mentioned in yesterday’s trade plan, what I preach here are IF THIS THEN THAT scenarios. I don’t predict, I am all about what the data is telling me. Where are dealers hedged, where are we to find support or resistance from the dealers, and what are the MMs doing intraday. This leads to my trades.
I enjoy interacting and learning from other traders so continue to share your trades, ideas, and how you use this trade plan by messaging me on Twitter @DarkMatterTrade.
News Catalyst
CPI…CPI…CPI…CPI
8:30am est - CPI
For more information on news events, visit the Economic Calendar
SPX/ES/SPY Trade Plan
Remember you can use this SPX trade plan to trade ES or SPY.
Bullish bias:
Above 3825 target 3860
If there is a failed breakdown of 3795-3800 target 3820
Above 3875 target 3900
I only want this trade if we have a cool CPI or find a support off a hot/neutral CPI otherwise this is chop zone
If there is a breakout of 3900 target 3915 then 3935
Bearish bias:
Below 3850 target 3825
If there is a failed breakout of 3900 target 3885 then 3870
I only want to take this in the initial balance - first hour of trading
If there is a breakdown of 3795 target 3780
SPX - The Why Behind the Plan
Weekly Option Expected Move
SPX’s weekly option expected move is ~111.90 points. SPY’s expected move is ~11.86. Remember over 68% of the time price will resolve it self in this range by weeks end.
This should just be used as another data point. Most times than not price will end the week within this range, but when unaccounted news events occur - such as SVB failing - the expected move should be a muted data point then.
VIX Update
Let’s review the VIX chart. We had another push up in VIX hitting a bearish OB yesterday at 30.81 before a sharp selloff closing at 26.52. All things considered could we see a retest of 30 again? Yea of course especially with a hotter CPI, but I think we could start to see a retracement of the VIX back to the 23 levels where we have a few zones of demand.
Remember, typically VIX going down correlates with a uptrend in the market and vice versa for a downtrend in the market.
Vol.land Data
For a better understanding of the various greeks below I would suggest you visit the Volland YouTube Page. Volland provides unique data showing where dealers are positioned providing in my opinion a higher degree of conviction to where price may move to.
Vanna - Levels where price may repel or act as magnet
Remember for price to go above spot through a magnet or repellent VIX and IV must decrease or stay flat. For price to go below spot through a magnet or repellent VIX and IV must increase.
Vanna Key Levels:
3870 is a large positive vanna above spot
3875-3900 will be chop filled and if you plan to long this zone please be careful and keep your stop loss tight - trap filled zone unless we get out of it with no clear trade plan in this zone
3825 is a large positive vanna below spot - price will seek to magnet to it
Above Spot:
3865 is negative vanna - acting as repellent
3870 is positive vanna - acting as magnet
3875-3900 is a cluster of negative vanna - acting as repellent
In order for price to move through these levels VIX must continue to decrease
3905-3915 is a cluster of positive vanna - acting as magnet
3920 is negative vanna - acting as repellent
3925-3935 is a cluster of positive vanna - acting as magnet
3940-3970 is a cluster of negative vanna - acting as repellent
In order for price to move through these levels VIX must continue to decrease
3975 is positive vanna - acting as magnet
3980-4000 is negative vanna - acting as repellent
In order for price to move through these levels VIX must continue to decrease
Getting above 3875 will take a news catalyst that will bring VIX down
Below Spot:
3850 is positive vanna - acting as magnet
3825 is positive vanna - acting as magnet
3820-3810 is a cluster of negative vanna’s - acting as repellent
3800-3795 is a cluster of negative vanna’s - acting as repellent
3790 and 3780 are positive vanna - acting as magnet
3775-3765 is a cluster of negative vanna’s - acting as repellent
3825 is a large tower that is going to attract price. Looking at just the vanna levels below spot suggests the market wants to sell off more. If you look at the line graph as well above spot levels are negative where as below spot levels are positive - positive draws/magnets price to it.
Gamma and Delta-Adjusted Gamma (DAG)
Above Spot:
3870 is positive Gamma - acting as resistance
3910-3915 is positive Gamma - acting as resistance
3925-3935 is positive Gamma - acting as resistance
4005 is positive Gamma - acting as resistance
Dealers must buy above 3885
Below Spot:
3855 is positive Gamma - acting as support
3840 is positive Gamma - acting as support
3820 is positive Gamma - acting as support
3810 is positive Gamma - acting as support
3795 is positive Gamma - acting as support
3775-3765 is positive Gamma - acting as support
Dealers must sell below 3830
Charm
Charm has taken a more bullish tone on SPX. This suggests a bullish tone, but you need to look at the vanna/gamma levels for where we can rally or find a level of support to rally from. Looking at overnight futures there is the “bullish tone” doesn’t mean it needs to carry into regular trading hours. I would even say that the SPX charm could be labeled as “neutral” suggesting an uncertain day due to CPI.
When reviewing Charm we also need to account for SPY’s charm. It is leaning bearish. Between the totals of SPY and SPX, SPX charm will outweigh SPY.
Keep in mind the total notional value of SPX should be multiplied by 10 for comparison to SPY.
Final Take
It all comes down to CPI…If we look at the past month of data I don’t know if we can/should expect a cooler than expected CPI. It doesn’t mean that the market can’t find a level of support to rally out of like we had today.
At this point it is clear market makers and the FEDs are propping the market with 0DTE options and wanting the market to buy calls and crush vol. This is why we continue to trade sideways in a kangaroo market and for anyone expecting a nice clean trending day I am sorry to disappoint I don’t think we will see it.
Thus, mark the key levels, review the trade plan and be ready to act based on the data.
Stay #paytient and react to the key levels - no predictions! Good luck traders.
I am going to share my key rules to intraday trading in the end of the plan moving forward to build better habits and allowing you to grow as a better trader.
My Intraday Trading Rules
I do not trade within the first half hour UNLESS I am in a trade from the prior session and looking to close the trade or we have a major gap or a key level already broken
I let the initial balance do its thing - I am just a small fish in a large ocean of traders so let's let them fight it out
I then wait for key levels targeting one level to the next and taking profits at each one.
If there are key levels that are 10pts apart that is when I have scalping mindset and anything above 10pts I want to give it the room to hit the price target with a 5 pt buffer to take profits once we reach within 5 pts of a target - I also tighten my stop loss once at 10-20% profit with the goal of never allowing trades to go red when I have a nice profit)
I supply options greeks with OB (order blocks) and FVG (fair value gaps) otherwise known as Smart Money Concepts
When I am scalping - ie targeting 10pt trade levels I will take profits and never go more than 10% red. Simple as that, know your trade plan strategy and the risk. When you are wrong you are wrong and reset
For 20pt trade level targets I will increase my stop losses to 20% and allow more of the trade to play in the event I entered too early
I try - key word try ha - avoid trading lunch hours defined as 12pm to 2 pm est. Money for the most part unless you are scalping - is made in the first 2 hours of the trading day and the last 2 hours
I always stick to two EMA’s on my chart and that’s the 10/50 EMA’s
When the 10ema is above 50ema we are bullish
When the 10ema is below the 50ema we are bearish
Go put these on your charts and when you view them on timeframes less than the daily timeframe you will see the power they provide
For scalpers out there the smaller timeframes provide great opportunities to scalp 5-10pt moves
There are more we could discuss including volume profile, low volume nodes that I think are great strategies to compliment option greeks. Maybe in the future we can include more details.
Trading is not for the unprepared. It is critical you abide to a strategy and checklist and walk into every trade with a plan. Without a plan you are simply gambling and have a better chance at the slot machines. There are more nuances to my weekly and daily checklists, but I think this provides a good read for now and we will/can continue adding to it.
To cover our basis…
Welcome to my Substack where I provide a daily SPX trading plan to help guide my intraday trading. The purpose of this letter is not to advice you on your trading or investment decisions. I am simply documenting my daily trading plan for myself to help with planning and execution. These are simply my opinions and the data sourced from the likes of vol.land, TradingView, Tradytics and others. The stock market is risky, gains are not guaranteed. This is not about getting rich quick, but learn to educate yourself and make the necessary financial decisions on your own. This is not financial advice.
Another great post! Quick question, how did you determine 3885 is where dealers buys above and 3830 is where dealers sells below under gamma?