SPX Options Expiration (OPEX) Cycle - Negative Gamma Rally?

The SPX Options Expiration (OPEX) cycle can be a powerful signal for predicting short term pivot points in the market.

We classify each expiration into one of two categories, positive gamma or negative gamma. This is based on the notional market gamma for that expiration, in other words we take all the options that expire that day and net out the gamma exposure.

The October 20, 2023 OPEX was a negative gamma cycle, 75/25.


In short,

Calls have positive gamma, and puts have negative gamma. When the positive gamma exceeds the put gamma, it is classified as a positive gamma cycle or a call-weighted cycle.

Conversely, when the negative gamma is greater than positive gamma, it is classified as a negative gamma cycle or a put-weighted cycle.

After a positive gamma cycle, we often witness market weakness or choppy price movements in the week following OPEX.

Negative gamma cycles are not as frequent, but we often see a relief rally in the week following a negative gamma cycle. This is based on a small sample size, but this pattern has held true for every occurrence this year, including January, March, and August.


In addition, The SPX is now nearing key support levels, most noticeably 4200 which is our Put Wall and key technical level. The bulls must defend this level, a break and close below 4200 is a bearish indication.

We also have the 200DMA (green) on the SPX at 4232 and on the SPY at 419.65. Sometimes, we temporarily overrun large moving averages, but generally, we see a positive reaction when testing them as support, at least in the short term.

Earnings season picks up this week, with heavyweights such as MSFT, GOOGL, and META set to report. Hopefully, this will divert some of the focus away from the headlines about the Middle East and surging treasury yields.
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