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Jun 16 11 tweets 3 min read Twitter logo Read on Twitter
For those following the #SPX early-morning settlement saga and "the market is going to collapse due to all the deltas coming off", here is another perspective to ponder:

👉 There's no rational reason to have fireworks.

A few thoughts on the setup into the open...

A 🧵 :
1/ The following graphic helps us to understand how to visualize "if-then" outcomes.

It's not a perfect model, but we believe that concept is valid.

The basic premise is that the market knows where the hockey puck is going and is mostly hedged.

Here's why: Image
2/ Circle 1: What is shown is just the SPX AM-settled component.

For this thread, we have restricted THIS display to just the AM's.

Normally, the SPX Gamma Dash (without the " ^ " before the "SPX Gamma Dash") is both the AM and PM (Combo) combined.
3/ Circle 2: It's early in the morning east coast time in the US as we write this, and we don't receive final OI updates until about 7:45 am ET.

The actual OI numbers may change, but the concept here is the same.
4/ Circle 3: About 4.7M SPX AM-settled contracts are set to settle at the opening print, +/-

Again, this does NOT include the SPX PM-settled component, which is in -play but does not expire until the end of the market day.
5/ Circle 4: Shaded green area shows where there is a high probability of the option closing ITM / OTM, both for puts/calls.

This is a pure guess, but it's based on anticipating an opening gap, if there is one, being less than 1%.
6/ Circle 5: Shaded yellow area shows where there is a lower probability of the option closing ITM/OTM for both puts/calls.

Again, this a pure guess, but we could gap up or down, which will change moneyness.
7/ Circle 6 - Circle 9: Shows puts/calls that are presumed ITM/OTM.

Terminal delta level is indicated in each region, and we believe there is a high probability that what is stated is true.
8/ Circle 10: This is the dealers' amount to hedge if the levels are not already hedged.

Again, we are constraining this to +/- 1% in anticipation of a gap.

Actual mileage may vary.

The concept is the same independent of the actual numbers.
9/ We discuss these things and so much more.

Come join a phenomenal community of traders and educators!
We hope this thread has provided value for you.

Follow us @GammaEdges for helpful content on trading, trend following, and making the options market actionable.

Like/Retweet the first tweet below if you learned something new:

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More from @GammaEdges

Jun 13
Are you looking to connect with new traders, master a new edge, or become a better trader overall?

Our first Public Open Mic is the perfect place to do so, which is open for ANYONE this coming Wednesday at 8PM EST.

More info on the utility behind our 2x Weekly Open Mics:
One of our main missions at GammaEdge is to empower traders with the right information to help them make better trading decisions.

We do this by hosting Open Mic sessions for members, where they can...
· Ask any trading-related questions to the GE admin/community
· Meet & network with other traders
· Help mentor & educate other traders

Our Open Mics usually run for about an hour depending on the depth & number of questions from the community.
Read 5 tweets
May 30
"The trend is your friend."

This a common phrase most have heard but many traders have no idea how to catch a trend consistently.

GammaEdge's Market Trend Model (MTM) makes this easy and is something you can implement tomorrow!

Here's how:
1/ Every transaction in the market produces an uptick (buying) or a downtick (selling).

One way to measure buying and selling is through the Cumulative Tick, the backbone of our MTM.

Before going too far down the rabbit hole, here is a primer on the CT:
2/ Tick is transactional — it triggers with each stock transaction.

An uptick occurs when the stock price increases, no matter if we buy 1 share or 1,000 shares.

It is similar for the downtick scenario too.

We then keep track of these upticks and downticks...
Read 18 tweets
Mar 29
@dampedspring It may be a bit more than $3B Andy.

We're showing the following structure into the end-of week:…

What we think matters on Friday is that ITM call component, as it will continue to push flows upward.
@dampedspring ... but into Friday, there is a significant net positive flow that could capture more ITM puts, forcing them to OTM and positive flow, as well as capturing more ITM calls.…
@dampedspring What is most striking to us is the simple collapse of charm AFTER Friday.

The landscape for April is flat, relative to the charm surface of this week.

The contrast is quite evident.

Read 4 tweets
Mar 19
18/ The "if-then" for COTMP is along the lines of:

✍️IF we push below $30.65 in $XLF, we'll watch for a potential upside reversal where we could enter long.

Here are the "if-thens" summarized to make sure you're tracking:

✍️ IF GEXRatio moves up, we'll look at upside opportunities.
✍️ IF we see OTM call delta-OI begin to appear, this may be a change in sentiment to the upside.
✍️ IF we see price push above $32, it may continue as traders lock in ITM put gains.
✍️IF we break above $32, ...
20/ ...we could enter long with a price target of $34 and stop loss (SL) just below $32.

✍️IF we push below $30.65 in $XLF, we'll watch for a potential upside reversal where we could enter long.

You now see how you can "stitch" together different observations about a trade.
Read 6 tweets
Mar 2
We expect a character shift in the $SPX after this week.

Option charm, which gives us sensitivities of the option complex to change in option delta due to time, can be a useful tool to visualize the potential of these changes, or lack thereof.

A 🧵 :
2/ Reminder: charm is a 2nd-order effect on the delta of an option and can be completely overwhelmed by opening/closing of contracts.

That stated, we this this is interesting (interactive link provided):…
Read 12 tweets
Feb 26
The power of option charm can be significant in developing your weekly strategy.

Curious about how to use it to benefit your trading?

Here's how you can in 30 minutes or less:
1/ Charm is one of the options "greeks" and there tends to be an aura of mystery on what it is and how to apply it to trading.

There is nothing mysterious about it, and if you embrace charm, it may better prepare you for possible changes in markets.
2/ By the end of this 🧵 you will have mastered the following:

✅a review of option charm,
✅the impact of charm on option delta,
✅the role of charm, open interest, and dealer risk, and
✅ Apply charm to planning your trading week.

Let’s get to work! 🔨
Read 30 tweets

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