The NASDAQ 100 Index and the Invesco QQQ Trust (QQQ) both experienced a significant rally following the low on March 13, and a mechanical force may have contributed to this surge. Options expiration week also played a role in the rebound of the index and the QQQ, as crucial gamma levels helped propel the market upward.
The Put Wall Provides Needed Support
SpotGamma monitored these key gamma levels and discovered that the Put Wall in the QQQ supported the market on March 13. The Put Wall refers to the strike price with the most significant net negative gamma in the underlying stock or exchange-traded fund (ETF). It is also the point where buyers may enter the market as put owners start to monetize their positions, compelling market makers to unwind their hedges. For the QQQ, the Put Wall on March 13 was at $285, significantly contributing to the QQQ bouncing off the low of approximately $285.20. This bounce allowed the QQQ to rally sharply and rebound to the Key Gamma Strike Price of $290 on March 13 and 14. The Key Gamma Strike Price is the strike price with the most significant total gamma position in an underlying stock, ETF, or index, and functions as resistance or support.
Call Wall Marks the End of the Rally
As the Key Gamma Strike Price increased on March 15 and 16, the QQQ had the necessary space to maintain its upward momentum. The QQQ may have stopped rising around $309 as options expiration approached because the Call Wall never shifted higher. The Call Wall is resistance and represents the strike price with the underlying stock's most significant net positive gamma. This is also the price level where call owners may look to sell, forcing market makers to unwind and sell their hedges.
While gamma levels did not directly cause the QQQ and the NASDAQ 100 to rally sharply during the week of March 13, they aided in the process. These levels acted as support when it seemed as though the ETF could break down by helping to invoke bullish flows due to hedges unwinding. Additionally, shifting the Key Gamma Strike Price toward the Call Wall was the options market's way of granting the ETF the necessary clearance to continue its advance.
In this instance, the options market likely played a role in recovering the QQQ ETF and the broader stock market, giving the market the support and momentum needed during the week to rally into close on Friday, March 17, 2023.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.