How important are option dealer hedging flows to market returns? How much impact does #0DTE have? How accurate is #Volland? To answer all of these questions, we wrote a white paper with Volland data. This paper is now available:

There is a lot of commentary about option dealer flows and their impact on the market. Volland is the most comprehensive public estimate of the dealer book expressed in notional greeks. We assess positioning at the trade level, store and aggregate every option trade, and show the greek imbalance on every option in ~225 equities.

I will note some key white paper findings in this thread.wizofops.com/whitepaper.html First, on a swing basis, here is the total notional #delta change regressed against $SPX returns. This includes gamma hedging. It is interesting, but the R^2 is only at .35, and there seems to be quite a few stray data points.

Good Morning! Today @myTradeHawk and I have a special Trader's Workshop show live at the Options Industry Conference. CBOE's Head of Product Intelligence Henry Schwartz will be on with us. Tune in at 9am EST, it is must watch. youtube.com/live/rQCmXI0In… The @OptionsConf is a conference with companies that facilitate options trading. They include MMs, the OCC, exchanges, broker-dealers, clearing firms, etc. It is industry professionals only, so it is all about the plumbing of options from the plumbers themselves.

Good Morning! Yesterday was a long-awaited post-opex downturn, but as I said numerous times, until markets cross $SPX 4K, this is a dip to eventually buy. That needs to be crossed within the next couple of weeks. Earnings will whip markets, but the key is tomorrow... No, not GDP. Not PCE Thurs, not $META earnings, but the one macro event that could drive markets under $SPX 4K is the BoJ Interest Rate decision. After reading Ueda's statements over the past few weeks, I don't think anything will happen this month, but signaling is possible.

Good Morning! Another slow market day yesterday, but there should be some vol expansion over the next couple of days, as shown in the premarket. Several liquidity modelers showing we are overdue for a pullback, and any vol expansion will be bearish thanks to positive vanna. Recently in my discord, I have been previewing earnings reports, both from #volland and @optionrats, and there is a loud, consistent theme... lower profit expectations, lower event vol. Across all sectors, all major companies particularly non-growth companies have lower earnings.

Good Morning! Yesterday featured another meandering negative day until some dovish comments from a non-voting member of the FOMC accused of insider trading (Bostic) caused a rally, despite some hawkish comments from a voting member not accused of insider trading (Waller). There was a lot of red in the days prior, so I imagine that this was just some pent-up bullishness looking for a reason to come out of the shadows. There is non-manufacturing PMI today and speeches by 4 non-JPow FOMC govs, one of them is Bostic again.

Good Morning! A wild 0DTE day with swift and decisive activity yesterday, but again a modest loss. The past few weeks have been reminiscent of all of 2022. Rising rates taking down equities. Yesterday I meandered on Twitter a little more and noticed some prayers to vanna. @jam_croissant popularized the "window of weakness", a period of 2 weeks after opex where vanna and charm have less of an effect. The subsequent weeks then have a bullish bias because of vanna and charm flows on option hedges for the month. Normally this is accurate, however...

Good Morning! A mostly muted day yesterday with some late-day 0DTE fireworks. At roughly 3:40 a huge block of 0DTE 3970 puts was bought, causing some strange gyrations at the end of the day. Normally at that time, the spreads get wide to prevent this, but it didn't stop someone! Overall it was a strange but low-vol day, especially with month-end rebalancing. Looking forward to March, there are not a lot of $SPX charm flows. With 4000 being a strong negative gamma strike still, we can have more jerky days that ultimately move little without macro flows.

Good Morning! Yesterday we saw a premarket rally which got higher when durable orders turned out to miss big time... wait, huh? The markets have become so obsessed with FOMC action that truly awful economic data results in rallies, at least initially. As the day went on the market dropped back towards the last close. Durable goods are goods that do not need to be purchased often, like cars or electronics. The DoC defines the line for durable goods as lasting >3 years. It is a sign of economic strength because...

Good Morning! Friday opened with very hot PCE numbers on the back of hot (albeit predicted) Japanese inflation. Ueda also spoke for the first time, but he did what all incoming officers do, he tempered expectations. One thing he did was he declared this CPI print as the highest, which begs the question what happens if it isn't?

The US has its own inflation uncertainty, with PCE coming in hot enough for Eurodollars to predict an additional 25bps raise from the FOMC. CPI showed signs of flattening for Jan, so it seems inflation is being passed on.

Good Morning! Today is opex, and after a rough data day yesterday followed by hawkish Fedspeak, markets tumbled. That tumble was assisted by 0DTE options, which have been getting a lot of publicity recently. I have a script that uses some Volland logic on 0DTE options only... So I have a more in-depth view of what is going on than many of the people commenting on news stories about it. Here are some unequivocal facts. First, these are not YOLO retail investors. I saw a tweet by @Mayhem4Markets about how 0DTE is institutional, and that is apparent.

Good Morning! When you look at yesterday's candlestick, and at times price action, you would think it was a fairly calm reversal day after hot retail sales data, but the 0DTE and intraday action was a lot more interesting. It painted the picture of an institutional battle, with gradual bullish trends countered by sharp slides in price. The bull was very savvy in the 0DTE space, buying loads of 4130 calls and selling ITM put spreads while selling 4150 calls. Then as we reached "Dealer o'clock" (2pm)

Good Morning! CPI fell mainly in line, although the FOMC core ex-shelter metric seemed high. Regardless, the price acted how Volland said it would, although the rally from lows did seem a bit labored despite the decent sized IV drop.

https://twitter.com/WizOfOps/status/1625468726861496320

For today IV will act a bit wacky since it is volex, but I would not read too much into it. Same bounds as yesterday, but not so many catalysts to threaten downside levels, just retail spending which seems to be poorly forecasted recently, and markets are not hedged for it.

I have received a bunch of questions about how I knew 3 weeks ago to be bullish for February from #volland. Ever since the CPI report in January, the options landscape for dealers has been the same as the big bull run... that is, puts bought and calls sold by customers. That presents as sold puts and bought calls by dealers. That created $91B in open net positive delta in $SPX, seen in the #volland picture. Why is this bullish? In short, this typical GEX formation creates a lot of negative charm to push markets up...

Good Morning! Yesterday's GDP number was decent, starting markets higher that were driven thereafter by 0DTE flows. Today, the "Fed preferred inflation gauge" is demanding only a $32 straddle price, $1 more than GDP and in line with typical daily prices. In other words, the market doesn't seem to care. This simultaneously makes the market unhedged and more dangerous, but also that this event is not a concern to traders,y and event vol has been well priced recently. I do see a lot of concern in financial and social media...

Good Morning! A large drop and rebound yesterday as $MSFT had a gloomy forecast, but why the rebound? Yesterday was driven by 0DTE flows almost exclusively after the initial drop, as noted in the public discord room.

A lot of clamoring over GDP this morning... But the options market doesn't seem to care, pricing a 1-day straddle at $31, which would be the same if there was no catalyst. These events recently have been met with decent market movement prediction and data forecasts within range, but this one is a little curious.

Good Morning! Yesterday was a dull day, but it was also indicative of the negative vanna above the 4000 $SPX strike. A vol crush that resulted in slight downside. Positive correlation between vol and spot price is how negative vanna acts. We are now entering earnings season, and $MSFT reported a disappointing forecast that is scaring markets overall. Like yesterday, the path of least resistance is still down, and now that pre-market is below $SPX 4000, I expect modest downside but nothing too impulsive this week.

Good Morning! There were three "catalysts" last night into today that the equity market in particular was not concerned about. By that I mean the 1DTE straddle at the end of the day yesterday was priced at $33, which has been the typical price recently. The first was the BoJ decision that all the macro analysts have been looking at since last month they raised the 10y rate 25bps. As it turned out, there was no change. Other markets including metals, bonds, and the Yen were prepared for a large move, but oddly equities weren't.

Good Morning! Last week we saw some relentless buying thanks to an in-line CPI print last Tuesday. We are now bumping up against the 4000 $SPX mark. Now the market must make a decision. 4000 is negative gamma, so we will likely see a break one way or another, not a wall. #volland And it will be determined by IV. 4100 is solidly positive vanna, negative charm going into opex, which portends a rise as long as IV is declining. But we just experienced a vol crunch with 4300 keeping price muted. VIX expansion has occurred when it dropped below 20 recently,

Good Morning! Today is the last trading day of 2022, and good riddance. It has been a difficult year. Going into 2023 there are plenty of risks and opportunities that are at the fore, but typically the ones that are not accounted for are the most dangerous. Which would those be? Inflation and the FOMC are valid concerns, but they are accounted for. The FOMC does a decent job communicating its intent to revalue equities while crushing demand to crush labor supply-driven inflation. While there are disconnects, they aren't my greatest macro concern.

Good Morning! The Drunk Santa Rally continues, as equities stumbled yesterday. 4000 $SPX remains a decent resistance according to #volland until January, but the strong vanna at 4100 can help it get overtaken, and if it does, it would be a nice breakout. Now that the Santa rally timeframe is over, the call for a drunk Santa rally seemed to be correct. There were times of uptick, but we ended up going nowhere in the end. January will be dictated by CPI on 13Jan, but the big March hedges to the downside are strong.

Good Morning! I was going to do today's morning tweet on $TSLA, as it has shed roughly 74% from its ATH over the past year. When will it stop? Kevin already did some analysis but wanted to shed a little more light.

https://twitter.com/Fatty_Trades/status/1607976538816790530

First, that $100 positive vanna would be attractive to price, not repelling. They are also short puts for dealers, so there has been constant hedging on $TSLA all the way down. #volland changes on $TSLA every day, it is a very active stock. But I'll sum up here quickly.