Welcome to OPEX Week

This marks the seasonal inflection.
Last year it was the 17th, a seasonal peak that coincided with VIX expiration.

The move preceded a series of events that culminated with an epic vol spike and vanna fueled crash.

History can't repeat, right?

(1 / n) Customers are confused today...
inventory is scattered across the range without the type of clear patterning we are often used to seeing.

Relatively large hedging at 6300 should be respected but properly understood in terms of tradable influence.

An array of tests and ranges within 2x straddle distance around the implied open 6240 with a clear "level to hold" for the bulls on any weakness

Will talk more about tests and ranges and these two important levels in today's meeting

GS put out a novel way of visualizing dealer gamma

Three lines:

(1) Prevailing gamma $ mm est.
(2) Cumulative hedging flow on 5% UP-move
(3) Cumulative hedging flow on 5% DOWN-move

some interesting takeaways here... Prevailing gamma varies, but not that much

I assume here that they're giving us the "notional gamma per 1% index move" figure here.

Since the tariff shakeout in April, dealer gamma has been mostly flat to small negative

if you think the summer markets are boring,
REFRAME

This is exactly the kind of market you want to to trade if you're leaning on dealer hedging:

✓ low intraday volumes
✓ low implied vols in the front
✓ localized greeks
✓ bigger dealer positions

I'll explain (thread) (1) low intraday volumes

Most of the order flow we can't predict.
Dealer flow is different. I
t's rules based, systematic, and fundamental to the business.

WHY IT MATTERS

Outcomes are more "predictable" when "predictable" flow is a greater volume-share.

—JP MORGAN'S QUARTERLY PUT SPREAD COLLAR—

all you ever wanted to know about:

✓ the trade
✓ its market impact
✓ its expiration effects

(a thread) first, the fund itself.

the giant SPX put spread collar
that's bought at the end of every quarter comes from JHEQX- JP Morgan's Hedged Equity Fund-I

It's the largest of 3 funds which are all contractually obligated to do the exact same thing, just at the end of different 3-month cycles.

Know your edge (and when it disappears)

If you're still looking for that JPM Collar call to pin the market next Monday at 5905

—stop.

This far in the money,
the SPX 6/30 5905 Call is a 92 delta option.

Why does that matter? ⏩ You're trading around the dealer position 📌

the 5905 Call expiring 6/30 is the largest inventory around, hands down.

For simplicity, let's consider *only* the quantity of calls sold to MMs by JP Morgan's Hedged Equity Fund (JHEQX).

Per their own documents dated 5/31, we believe them to be short 35,861 of the 6/30 5905 Calls.

✓ Dealers own these.

✓ They hedge them dynamically.

Market Makers don't manipulate price—
we're trapped by our own hedging requirements.

When SPX drifts between long and short strikes, our systems start buying and selling futures in ways that create predictable paths.

(short thread)
These paths depend on a variety of factors... it's not as simple as "GEX"

► Gamma (Spot Movement)
► Charm (Passage of Time)
► Vanna (Changes in Implied Volatility)
► Position Type
► Position Size

Today MIAX busted all trades within a 15 min. window

Technically 14 minutes, 45 seconds and 686.121405 milliseconds (but who's counting?)

For most customers it's just a minor pain but it's a nightmare for a market maker

(short thread) 1 / What does "busting all trades" mean?

The exchange literally cancels all trades executed within this window.

15 minutes is an eternity.

And while TRADES are cancelled,
hedges are not.

SPX Jul-31 6500 Calls
18.2k bought Friday around $5.00 avg price 🎯

To put in context, that's:
✓ the same as 182k SPY calls
✓ $9.2 million in premium spent
✓ breaking even on a 12.1% rally over 68 days

hedge, or speculation?
we can't know for sure, but... 🧵 —we CAN know how this trade impacts the dealer's position.

Why does it matter?
Dynamic option hedging drives a significant portion of market activity.

Positions dictate behavior,
and shape how MMs respond to order flow.

This makes markets more predictable, not less.

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..? 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

Let's start with the basics.

Imagine a long 1 month straddle.

When we start out, we have a very basic position:

✓ Long Vega
✓ Long Gamma
✓ Paying Theta

We don't have:

✕ Skew (Vanna)
✕ Wings (Volga)
✕ Speed (Gamma stable)
✕ Charm (Delta stable)

How does it evolve?

https://twitter.com/VolSignals/status/1923769534168682740

Vega correlates with time to maturity.

Longer dated options have more Vega
Shorter dated options have more Gamma

As the clock ticks, but spot remains flat
our position loses Vega but becomes longer Gamma

Market Makers don't manipulate price—
we're trapped by our own hedging requirements.

When SPX drifts between long and short strikes, our systems start buying and selling futures in ways that create predictable paths.

(short thread) These paths depend on a variety of factors... it's not as simple as "GEX"

► Gamma (Spot Movement)
► Charm (Passage of Time)
► Vanna (Changes in Implied Volatility)
► Position Type
► Position Size

My view is best stated as:

- I don't think we surpass all-time highs without seeing a meaningful reversion in key flows
- the overnight gap was instrumental in moving price OUT of a zone of pressure and retracement (5550-5650) and into a zone of acceleration and levitation (5750-5825)
- pressure will draw us back into this range unless we have another massive stop-in

Going back to subject of the quoted thread:
This morning, a customer bought 20k of the 0DTE 6000 Call for avg $0.50.

We are drawn to big numbers.

A customer buying 20k of anything stands out to us.
The buyer spent $1M in premium...
"they must know something!" is a common, instinctive thought, when you see an outlier like that— especially on the buyside.

But when I'd see an order like this to open the day as a MM, my first thought is SOLD

and my second thought is SELL MORE

Not every flow is smart.
Not every buyer knows something.
They could be forced to buy per their clearing arrangement or internal risk thresholds.
They could be punting, gambling.
...or they could be covering an exposure we're not privy to.

This was a customer order, not a bank or firm trade and exactly the type of order you want to lay into as a market maker.

Compare that premium on this straddle price to any similarly distant trade on any other day, and you'll see why.

Note how fast this premium vanished: For an option to have any dynamic influence, exerted through the dealer hedging processes, it has to first exist somewhere on the distribution.

Something this small is like a conditional conditional.

The only hedge for the MM is to buy a risk unit near the level for margin coverage.

Hedging a delta of 1 (1%) means the MM is buying 2 ES futures per 100 SPX calls sold.

In this case, a static opening hedge would have been only 400 futures for the entire 20k lot of calls sold to the customer.

And of course then, the unwinding of this hedge (charm/decay) is trivial.
Selling 400 futures throughout the course of the day would do very little to cause any discernable pressure on the index.

The move you should have caught—

Yesterday at 10:47 AM EDT, there was a trade setup so good...
it would have been a gamble NOT to trade it.

What was the setup, and how absolutely perfect did it play out?

Time for some show & tell 🍻

(a thread) The SPX has failed to get through some key levels lately.

Not once, but over... and over... and over again.

I wrote about it here⏩

https://x.com/VolSignals/status/1902714974138491341

What are the core hedging flows, and why are they important?

Let's start with Gamma.

As a MM, Gamma tells me how my position's Delta will change with the index. (dDelta/dSpot)

Gamma doesn't tell us about direction- it tells us about MM behavior.

(a thread) Broadly we know that Gamma can be one of three things:

Positive = MMs sell futures on rallies, buy on declines

This doesn't in and of itself influence direction-

but it creates stability

SPX Gamma by tenor / by strike
h/t GS Derivs

JHEQX... we meet again!

Remember- pinning happens due to a combination of Gamma & Charm (sorry Vanna, you're not invited)

Move higher, and dealers sell futures as spot rallies. (Gamma)

Move in the money, and dealers sell futures as time passes.
(Charm)

Move lower, and dealers buy futures as spot declines.
(Gamma)

Remain out-of-the-money, and dealers buy futures as time passes.
(Charm)

Gamma maxes out when the option is ATM
Charm SELLING is the strongest when the dealer long call is ~80 Delta
Charm BUYING is the strongest when the dealer long call is ~20 Delta.

Gamma acts as the range compressor around the strike.

Charm creates the magnetic field around it.

Gamma also counteracts Charm- creating a type of path towards the strike, where dealers recycle their hedges... buying AND selling (or vice versa)... grinding the index towards the strike at expiration. The JPM Collar Call is highly visible.

Arguably the most famous and oft-cited option at any given time.

But these mechanics are happening every single day.

WELCOME TO OPEX

$1.9 trillion to expire this morning on the serial AM print

(a thread) Remember- the OPEX "trillions" are always an exaggeration of the risk transfer *actually* taking place-

CTAs aren't recklessly puking futures back and forth through triggers...

—obviously.

But they ARE a concentrated expression of synthetic negative gamma embedded in the S&P's market structure.

What's "GAMMA" again?

Simple.

(short thread) bingo-

gamma is NOT about UP or DOWN, strictly speaking.

There are some neat consequences arising from the presence of gamma on the books that feed into bullish positioning downstream-

but fundamentally, gamma has nothing to do with direction.

First- options...

Sunday night data dump.

...time for no context derivatives memesplaining.

new meme every 5 minutes.
will go until the folders are dry 👀

retweet the good ones

disclaimer: no offense

💥...a lookback at last Summer's flows 🐳👀

[Bookmark this to catch the updates]

...we first began profiling the Whale's trades last year, the week after July OPEX💥

https://twitter.com/VolSignals/status/1808691325136453672

Tonight, let's rewind the clock to Tuesday, July 18th, 2023 ~ the beginning of our epic journey.

For all the hype the JHEQX collar trade gets...

there are some index flows out there that are arguably more important to know and monitor.

The retail whale nobody talks about 👀

Known colloquially as the "IB Trader" because despite appreciable volumes, he still routes limit orders electronically through an Interactive Brokers account... which are then either simply announced on the floor *OR* fired off in an electronic auction on Cboe's Complex Order Book.

Without getting into the mechanics or advantages/ (disadvantages) of executing this way, suffice it to say- this customer tends to make a splash when he enters the market.

Why?

Not your average retail orders...

Some positions below, for your consideration:

SPX dealer options inventory...
What's the setup into next week...? h/t GS...

"The gamma cushion that supported markets for first 3 mos of the yr is no longer there-

We've sold off through gamma support... dealers flip short gamma lower... long gamma lives higher"

"-SPX can freely move lower/ potentially meet resistance higher"

my notes next

Welcome to SPX AM OPEX...

A little thread to explain why squeezes are more likely in the AM vs the PM expirations... A lot of factors come into play in these preopen sessions- and they all happen against the backdrop of low liquidity

If market makers are short gamma on a strike and we start moving through it —their gamma hedging algos before the open *have to buy delta* to hedge this.