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The Week Ahead Newsletter: January 21, 2025

Writer's picture: ConnerConner

This week, the main focus will be earnings, with many major companies reporting their quarterly results. Notable names include Netflix (NFLX), Procter & Gamble (PG), Johnson & Johnson (JNJ), American Express (AXP), and Verizon (VZ).



The economic calendar is fairly light, featuring Jobless Claims on Thursday and Michigan Consumer Sentiment on Friday.



Last week, the SPX bounced off the SPY 575 Put Wall on January 13, forming a higher low on January 14. The bulls regained control by reclaiming the 5900 Flip at the open on January 15 following a soft CPI and held above the 5930 Flip on both January 16 and 17, and we are set to open this week, January 21, above the 5975 Flip.



The Gamma Index (Dealer Gamma) stands at +200M and given the close proximity to the Flip, the margin of safety is minimal.


The Flip is the dealer transition level. As long as we hold above the Flip, the market should remain supported, as dealers buy weakness and sell strength. However, if we fall below the Flip, bears will regain control, and we would anticipate higher volatility, both implied and realized as dealers sell weakness and buy strength. 




Other levels to focus on include: 

Resistance: 6020 (SPY 600 Call Wall), 6050/6060, 6075, 6100 Call Wall

Support: 5920 (SPY 590 Put Wall), 5900 Put Wall, 5870 Macro, 5770 previous weeks low


The downsloping structure (pink) connecting the all-time high around 6100 remains a point of resistance. Meanwhile, two upsloping structures (yellow) connecting the lows are beginning to form and may act as support this week. Additionally, several gaps remain unfilled: 6020–6037, 5979–5937, and 5905–5942.



Markets don’t move in a straight line. With the SPX up nearly 4% from its local low, we should be prepared for a pullback or consolidation at some point this week. Intraday cues of market weakness include a rise in the VIX and underperformance in MAGS.


While MAGS can provide directional skew, this can be offset to some degree by other sectors. Sector rotation, as seen on January 16, is indicative of low volatility and mean reversion price action. In such an environment, short volatility strategies (credits) and trading swings tend to perform well.


On the other hand, if it's a broad market performance—whether green or red—as witnessed on January 15, it signals a trending market. In this case, playing the trend, long volatility (debits), and being tactical on counter-trend positions generally tends to perform better.


Our market condition alerts, which are also posted in the market updates channel within our Discord, will take this into account.


Example:


While we do not have a good reason for the market to sell off, the Volatility Risk Premium (VRP) has declined substantially, from a premium early last week to a discount at the start of this week, now giving an edge to option buyers.



Post Options Expiration (OPEX)

Monthly options expiration (OPEX) is now behind us with $2.4T in notional open interest tied to S&P 500 contracts expired with the SPX pinning at or near the large gamma strikes (OPEX pins), 5950 on January 15, 16 and 6000 on January 17.



The big move higher last week was a combination of gamma sensitivity near OPEX and IV crush, aka feedback loops. This week, we will look at open interest changes (repositioning) to provide an indication of the probable path forward.



Are participants demanding calls or puts, and at what strikes? Far out-of-the-money options imply greater volatility, while closer-to-the-money options suggest lower volatility — similar logic when analyzing 0DTE options volume on an intraday basis.


Introduction: Analyzing 0DTE Options Volume


With Trump now in office, tariffs have become an increasing focus. Policies, media reports, and remarks by Trump on tariffs may continue to trigger sharp market movements. It’s best to keep the news feed up and remain vigilant. Breaking news (economic data, Fed speak, geopolitical events, etc.) is also posted in real time to the market updates channel within our Discord. Example:


SPX options are currently pricing in a 1.0% move every day this week and a 2.15% move over the next five trading sessions.



 

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Happy Trading,

0DTE TRADERS



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Conner MacGowan

Welcome to our newsletter! Here, you'll find an introduction to our exclusive membership content, including insights into the S&P 500 trends, market positioning, dynamics, and in-depth education.

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