The S&P 500 is currently testing a key technical level around 6,735, while still showing an upward trend. However, caution is advised due to short-term price patterns and positioning in derivatives, especially with a major options expiration on November 21. Recently, the SPX dropped from a peak of 6,920 and is now facing a strong support area. This support zone is made up of the 50% Fibonacci retracement from June 2025, a high-volume node, and a rising trendline. The daily Relative Strength Index (RSI) has fallen below 50, suggesting a possible shift in buyer control.

Options Market Dynamics

If this support fails, we might see more declines linked to both price movements and options market dynamics. The upcoming November 21 options expiration involves significant open interest, particularly weighted towards puts at $6,000, $5,500, and $5,000 strike prices. The Max Pain level is set at $6,450—much lower than the current price—which could lead to dealer hedging and impact market movements. If SPX drops below 6,735 without macroeconomic support, hedging activities could rise, increasing volatility and potentially pushing the index toward the 6,500–6,450 range. As the S&P 500 tests this critical support level of 6,735, it’s wise to be cautious in the weeks leading up to the November 21 options expiration. The upward trend appears to be slowing, as indicated by the daily RSI dipping below 50, a sign that buying pressure is weakening. Today is November 5th, giving us a little over two weeks for these developments to unfold. This technical weakness occurs in a tough macro environment. The October Consumer Price Index showed core inflation stubbornly high at 3.1%, making it tougher for the Federal Reserve to suggest easing soon. Recent comments from Fed officials emphasize a commitment to keeping interest rates high, which may restrict significant market gains for now.

Volatility and Defensive Strategies

We can see this caution reflected in the derivatives market. The VIX, which measures expected volatility, has risen to over 19 this past week, indicating increased investor anxiety. This rise aligns with a strong interest in put options for the November 21 expiry, which has the highest open interest. The concentration of put options and the Max Pain level of 6,450 could create a magnetic effect if the 6,735 support breaks. A clear move below this level might compel dealers to sell S&P 500 futures to manage their exposure, increasing selling pressure. This dynamic can accelerate downward movements, potentially bringing the index closer to the lower 6,450 area. For traders, it could be wise to hedge long positions or consider short positions. Buying puts or put spreads with strikes around 6,500 could provide effective downside protection through the November expiration. We should approach any rallies with skepticism until the index can clearly reclaim the 6,920 level. We’ve seen similar patterns in past cycles, especially during late 2021’s volatility, where imbalanced options positioning ahead of a major expiry intensified market moves. Given the current situation, adopting a defensive stance is advisable. Reducing leverage and waiting for a confirmed breakdown or a strong bounce before pursuing new aggressive positions would be prudent. Create your live VT Markets account and start trading now.

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