Most of the time when we talk about “gamma traps” people assume its a downside only event. I don’t think thats true. As I once read somewhere “gamma happens both ways”. There is evidence the last several days rise in stocks was caused by calls being rolled up. If market makers are on the other […]
Market Analysis
SPY Gamma Visualization
Below is a chart of gamma across all strikes in SPY. You can see that there is a large amount of gamma supply at 305 (right most arrow) and gamma flips from positive to negative around 301. It is below that strike where our model predicts increased volatility as dealers go from buyers to sellers. […]
Fed Versus High Gamma
Today we have an interesting confluence of events: a FED FOMC rate day and ultra high S&P500 market gamma. As of this posting( 10/30 @ 10:30 AM EST) market gamma is ~$1.8 billion which is quite high and forecasts an S&P500 trading range of 50 bps (1/2%). The Fed is widely expected to cut rates […]
Does Gamma Create Overnight Market Out-performance?
One of the working theories we’ve had is that the out performance of the S&P500 during the overnight session is due to market gamma. The idea is that options dealers gamma hedging keeps the market in check during cash sessions, and overnight the market can move about more. The chart below shows how much more […]
Why Market Gamma May Be Useful for Futures Traders
Here is a quick example to illustrate how market gamma may be useful for a futures trader. The last week SpotGamma has calculated a very large amount of gamma in the market, north of $1 billion. That predicts a tight, range-bound market. Below is a chart of the last month, the yellow box highlights a […]
Why Market Gamma Levels Matter
Here is a very low level primer as to what dealer gamma means and why those levels appear to influence the markets. There are many assumptions and oversimplifications made here. See our other articles and FAQ for more detailed information. Dealer gamma is a dollar value that estimates how much options dealer may have to […]
Has Gamma Made the VIX “Useless”
Posting this as something to revisit later. Zerohedge posted the following recently: If one observes a conventional indicator of prevailing risk sentiment such as the VIX, which is trading in the low teens and near the lowest levels over the past two years (and far below its long-term average of 20), one would be left […]
Gamma Effect Seen In Index Movement
Lets classify this as what it is: speculation (at best) but its quite interesting on days like yesterday when the S&P is down only 34bps while Nasdaq and DOW were down ~90bps. Yes, Boeing (BA) hurt the DOW in particular but that wouldn’t explain the Nasdaq performance. The theory that should be bookmarked here is […]
How an Option Pin Plays Out
The current October options expiration portrays how an options pin can play out. For several days we have seen 3000 as our high gamma strike, with options volume at 3000 strike dominating the market. As the market moves away from this strike options dealers and other options hedgers move the price “back in line” to […]
Mid October Rally
Here is a chart mapping out how we viewed this recent rally back up to 3000 in SPX, along with a bit of a prediction. The volatility crush sparked a rally today up to our “high gamma strike” of 3000. Because gamma is very high (~$1bn per S&P500 point) and 3000 is a high gamma […]