Weekly GEX Insights: 01/13 SPX dropTotal Correction? What Can an Options Trader Do in This Situation? How Far Might We Fall This Week? We’ll tackle these questions in this week’s options newsletter!
It looks like the new president hasn’t even been sworn in yet, but the market is already reacting with fear to every statement he makes. Last week’s economic data didn’t help ease those concerns either.
SPX Weekly Analysis
Friday’s red candle set a bearish tone heading into this week. Everyone is predicting and pricing in a potential market apocalypse, and I keep getting the same question: “Greg, how far can we fall?”
My answer remains the same: we can fall indefinitely—nobody can know for certain ahead of time.
What we can do, however, is analyze our charts and use the our weekly GEX profile to identify the key levels, so we can better understand the market’s dynamics.
Examining expirations through Friday, every NETGEX profile is negative , so we can expect volatile movements this week. We’re currently trading below the HVL level, which means that market makers are likely to move in tandem with retail traders. This typically results in bigger swings.
We already saw this heightened volatility last week—just look at the size of the candles, and you can tell how quickly sentiment can shift.
Below 5965 (the HVL level), we are in a high volatility zone what lies underneath?
1st Support Range: 5780–5800
5800: Currently the strongest PUT support level on the downside. A correction may pause here due to profit-taking.
Right beneath this level is the previous gap-fill zone. Remember, these areas function as ranges rather than single lines, as I’ve highlighted down to 5780. This could easily be a take-profit target for traders playing gap fills—an approach that’s quite popular.
2nd Support Range: 5700–5650 (Very Strong)
Starting at 5700: We encounter another robust PUT support zone.
This area is reinforced by previous lows, previous highs, and the 4/8 grid boundary from our indicator.
Even if nowhere else, many expect at least a local rebound to occur within these levels.
Putting it all together, it’s clear that the weekly trading range is shaping up to be roughly between 5680 and 5965, expecting big & volatile moves.
Remember, CPI and PPI data are coming out on Tuesday and Wednesday, which could trigger additional volatility.
When looking at SPX, SPY, or /ES futures, my opinion is that the rapidly spiking implied volatility (IV) during a market drop, along with a PUT pricing skew, can present favorable opportunities for options traders. The distance to the strongest lower support zone is around 100–150 points, so you could:
Trade directionally for the short term—hoping to be either right or wrong quickly, or
Try to profit from the market situation in a more strategic way (which is what I typically do).
Personally, I prefer the second approach:
I’ll open short-term (a few days) credit put ratio spreads for a small credit, which gives me a wide breakeven range and a big “tent” on the downside.
