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VolSignals Profile picture
@VolSignals
May 20, 2025 • 10 tweets • 4 min read • Read on X
Scrolly
90% of options data sellers get this wrong.

Let's say Esoteria really does sell me 100 Jun 5200/5600 Put Spreads.

We both trade live (no hedge).

We cross in Cboe's Complex Order Book
(sorry MBI no bro on this one)

How does each method capture the trade..?Image
First, naive portfolio construction.

It holds:
» Customers buy puts to hedge
» Customers sell calls to finance hedging

Market makers are therefore:
✓ Short all the Puts in the OI
✓ Long all the Calls in the OI Image
Dealer position, naive construction:

Short 100 Jun 5600 Puts
Short 100 Jun 5200 Puts

Market impact (dynamic) after our trade:
🔸Short Gamma
🔸Shorter Gamma to downside
🔸Charm influence is bullish until between strikes
🔸Market more volatile on selloffs Image
Next, Dealer Directional Open Interest (DDOI).

It holds:
» Customers pay the bid/ask to trade.
» Dealers collect the bid/ask (trade for edge).

Market makers are therefore:
✓ Buying the contracts trading closer to the bid
✓ Selling the contracts trading closer to the ask
Esoteria may be a great trader and correct on stuffing me with this June Put Spread.

But when it trades, I'm more likely to work the order below theo to get a decent execution price.

Dealers will see the Jun 5200 5600 PS trading .15 under on the COB.

So will the data boiz. Image
Dealer position, DDOI:

Long 100 Jun 5600 Puts
Short 100 Jun 5200 Puts

Market impact (dynamic) after our trade:
🔸Long Gamma until ~ 5350-5400
🔸Shorter downside Gamma
🔸Charm bearish > 5600, bullish between 5200-5600 and bearish < 5200
🔸Supportive, then volatile down moves. Image
Finally, Cboe-signed trade data:

It provides:
» Actual net long (short) per contract, by entity type

Market Makers are therefore:
» Long (short) whatever the Cboe says they are.
Dealer position, Cboe-signed data:
(no change)

Market impact (dynamic) after our trade:
(no change)
#3 is the only correct answer.
You're misled by 90% of the data services.

They use methods (1) or (2) and don't know, or don't care, that they're selling you noise.

We're just getting started.

You know the drill.
Retweet the thread & I'll keep going...

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More from @VolSignals

VolSignals Profile picture
Feb 6
"We think a stronger gamma supply from the 0DTE complex has driven the long gamma overhang (lower intraday volatility, all else equal)" - UBS

Bingo – not all gamma is created equal Image
Longer tenor options literally have different gamma profiles.

Their gamma distributes farther across spot ranges and has less local variation (speed)
This creates stable gamma "regimes" at the back of the gamma profile.

Remember the regimes?
Read 13 tweets
VolSignals Profile picture
Feb 6
When you know (accurately) what market makers are holding in the SPX

...you get more insight than you realize.

Years in, I'm still fascinated by what I'm learning every day as I drill into the details each morning and rate the outcomes.

Take positions, for example > Image
Across the 6800s for Friday's expiry-
market makers are net long 5,874 options

in the 6700s
market makers are net short 190 options

in the 6600s
...market makers are net long 15,952 options

Without being a quant, can you guess which range tomorrow would bring highest RV?
That option distribution is critical
it defines how the market will behave

note, I didn't say "could"
I didn't say "maybe" or "tends to"

it defines how the market will behave
Read 17 tweets
VolSignals Profile picture
Feb 3
Vol Control funds currently 'very long' the S&P

these funds scale their exposure according to estimates of volatility, which are usually based on blended measures of historical volatility.

Their flows are impactful, but can't be modeled as precisely as option hedging

(1/N) Image
The simple way to understand their behavior -

When the market is calm, they'll buy more equities.
When it's volatile, they'll sell equities & reduce their beta
This isn't "exactly" gamma...

but it's yet another "rules-based" flow that's downstream of volatility, which is highly correlated with option gamma hedging flows.

This connection is likely the root of why market participants believe that "positive gamma is bullish."
Read 10 tweets
VolSignals Profile picture
Feb 1
Gamma is a simple concept that starts with knowing that market makers want to make money trading options (not gamble on market direction)

So *delta* is the greek that tells us how much money we make or lose

when the market moves...
(1/n)
If our delta is 100 and the SPX goes up $1, we make 100
if it goes down $1 we lose 100

but options are more complicated because that "delta" changes, too.
Gamma measures how much that changes

If our delta starts out neutral (0 market exposure)...

the market goes up $1

and suddenly our delta is +200

our gamma must be +200 (delta change / spot change)
Read 12 tweets
VolSignals Profile picture
Feb 1
SPX DEALER GAMMA
[How to understand it and use it in your trading]

Last week, average dealer gamma was +$7.9bn, according to Bank of America

Let's break down what this means, bring the number down to earth- and explore how to use it in your own trading approach >> Image
First, that figure is Notional Gamma

it represents the dollar change in the option portfolio's delta given a 1% move in the index, expressed in notional terms.

A "delta" figure in this context is a way to understand your position's exposure to the underlying >>
Saying that your delta is $7.9bn

is like saying

"I expect the value of my options portfolio to behave as if I owned $7.9bn worth of stock" >>
Read 22 tweets
VolSignals Profile picture
Jan 21
Long gamma or short gamma?

Most of the time, the market is in a "long gamma" position

Technically, this means that flows are absorbed by the hedging behavior of market makers- stabilizing the market overall and compressing ranges over time.
But compare today to yesterday?

If you're zoned in, this probably "feels" like negative gamma
but guess what...

it's still significantly positive overall.

It's just a major RELATIVE change in regime, comparing yesterday's totals to today's totals.

How do we quantify it?
Read 5 tweets

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