Basic Points

• The Put Wall is our major support level, which measures the most amount of put gamma.
• Our data shows that the Put Wall offers strong support, but it is not quite as strong in equivalence as the Call Walls are in being a resistance point.
• The Put Wall is often a point where buyers will enter the market. 
• It is also a point where put holders are likely to close their positions for a profit.

Intermediate: Interpreting the Put Wall

In general, the Put Wall level is the lower bound of the probable trading range. A change in the location of the Put Wall can help to manage your risk while either long or short by adjusting the strikes or stop losses (preset exit points to accept a potentially max loss). If going long, it is common to set a stop loss under a major support level such as a Put Wall. 

Like our other key levels, a shift higher is a bullish signal while a shift lower is a bearish signal. However, it only suggests a probabilistic advantage and should ideally be combined with other analysis for the best effect, such as checking to see if support aligns with strong combos (closer to 1), high liquidity (many limit orders on the same price point), and strong nodes on a volume profile (very high volume levels on the same price point).

• The Put Wall has held in 89% of daily trading sessions, meaning the intraday low did not fall below the Put Wall.
• In 93% of sessions, the SPX closed above the Put Wall.
• Following a Put Wall breach, forward returns are noticeably positive: average 1-day return of 14bps, average 5-day return of 7bps, and average 10-day return of 39bps.

Use case: Sell secured puts at or just below the put wall to collect premium, anticipating the put wall to act as support.

Put Walls for the major indices are published each day as pictured below. 

Advanced: Understanding Put Walls

The reason a Put Wall can function as an effective support mechanism is that puts on those strikes lose some profitable convexity (accelerating exposure) at-the-money. The mechanism here is that put holders generally open with out-of-the-money strikes at major round numbers, which is essentially what forms a Put Wall. By the time those puts hit the money at the Put Wall, they no longer have as steep of a reward/risk curve. 

These same put-holders might roll down in mass (close and open at a lower delta), which could easily sink the Put Wall to a new lower bound over the longer term. However, the immediate effect of closing all those positions would mechanically prompt dealer buying. This same dealer reaction would lower implied volatility, which would shrink deltas (directional risk), causing even more dealer buying; this is the bullish side of the vanna effect. Vanna is the effect of implied volatility on deltas, and implied volatility is the expected percentage range over the next year based on option prices with 68.3% confidence. This type of vanna boost can halt and even reverse momentum and therefore help a Put Wall perform as a support level.

Watch this video to understand how to trade with our put wall: