Zhitong Finance APP noticed that the expiration of options last Friday meant a significant decrease in the gamma level of the S&amp;P 500 Index and the stock market. This decrease signifies the removal of the anchoring effect that created a tight trading range in the past week from the market.From now until the end of June, investors may see a significant market pullback. After the June options expiration, hedging flows will no longer support the market, as liquidity levels will also decrease with the end of the quarter approaching.Decrease in Gamma LevelIn the days leading up to the June options expiration, the gamma level of the S&amp;P 500 Index sharply increased to nearly $1.7 trillion. Now that the options have expired, as of the close of last Friday, the gamma level has dropped to around $260 billion. This significant decrease in gamma is followed by a major drop in market stability.A large amount of gamma can help cushion market pullbacks, as market makers typically act as buyers during pullbacks. Higher gamma levels also create tighter trading ranges as market makers act as sellers during uptrends.<img src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20240624/1719208964170700.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="image.png" original-src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20240624/1719208964170700.png"/>It is also important to note that the zero gamma level (where gamma can transition from positive to negative) is 5440. This means that if it falls below 5440, supportive fund flows will disappear, leading to more selling as the market enters a negative gamma state.<img src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20240624/1719209306214229.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="image.png" original-src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20240624/1719209306214229.png"/>Potential Liquidity ExhaustionFurthermore, the usage of the Federal Reserve's reverse repurchase tools in the last week of June is expected to increase significantly. We usually see an increase in the usage of reverse repurchase tools as we approach the end of the quarter, as banks aim to withdraw cash from the overnight financing market and place it in safer Fed reverse repo tools to support their balance sheets.Typically, the usage of repo tools increases around 7 to 10 days before the end of the quarter, often rising by around $150 billion to $300 billion. In June 2023, there was no such increase, only rising to $990 billion. However, last year, with the surge in Treasury issuance, repo tools were being depleted. This year, repo tools are more stable, with net issuances mostly lower, and in recent weeks even negative. Therefore, the usage of reverse repos may increase by $150 billion to $300 billion before the end of June.<img src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20240624/1719209492445967.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="image.png" original-src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20240624/1719209492445967.png?"/>Last week, due to quarterly tax revenue leading to an increase in the US Treasury's general account, the liquidity of the Federal Reserve decreased, causing the reserve balance held by the Federal Reserve to drop to $3.35 trillion. When the Treasury's general account increases and reverse repurchase tools increase, the reserve balance held by the Federal Reserve will decrease, which may lead to a depletion of liquidity in risk assets.Risk assets are affected.This is the case when evaluating the changes in Bitcoin prices and reserve balances. The recent weakness in Bitcoin seems to correspond to the decline in reserve balances since early 2024.The S&amp;P 500 Index is mostly the same, and the situation in the past few weeks also meets expectations. The fund flows brought by the expiration of options in this cycle may distort some potential impacts of Bitcoin. Alternatively, the rise in Nvidia's stock price in the stock market may even offset the impact of the market's liquidity decline.The equally weighted S&amp;P 500 Index ETF has remained relatively stable with changes in reserve balances, possibly because Nvidia is neutralized in this equal-weighted version.However, the Russell 2000 (RTY) closely tracks changes in reserve balances, as indicated by changes in liquidity flows in reserve balancesIn addition, the decrease in reserve balance liquidity can even help explain why the bid-ask spread of the S&amp;P 500 ETF has widened in recent weeks. When liquidity decreases, spreads widen, and when liquidity is stable or increasing, spreads narrow. The recent widening of the spread between the buying and selling prices may be directly related to changes in liquidity and foreign exchange reserve balances.<img src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20240624/1719210965245003.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="image.png" original-src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20240624/1719210965245003.png"/>Overall, a series of events in the stock market last week may have led to increased volatility and a decline in stock prices, as the stock market lost some supportive funds and liquidity crucial for boosting and sustaining stock market gains

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This week, the US stock market faces two major challenges: a sharp decrease in gamma after options expiration + liquidity tightening. Investors may see the stock market start to sharply pull back, as hedging flows will no longer support the market and liquidity levels decrease. The gamma level has dropped to about $260 billion, significantly reducing market stability. The use of reverse repurchase tools is expected to increase significantly, making repurchase tools more stable with lower net issuance. By the end of June, the usage of reverse repurchase may increase

This week, the US stock market faces two major challenges: a sharp decrease in gamma after options expire + liquidity tightening