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 […]
Market Analysis
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 […]
Nomuras Gamma View after the Rally
Via Heisenberg, here is Nomuras Gamma View after the Rally. They note the following: “[The SPX was ]gravitationally pulled higher (spot 2970) and now sits comfortably between the two large $Gamma upside strikes of 3000 ($3.7B) and 2950 ($2.5B)”…“As the bullish macro catalysts have indeed begun materializing, the various hedge expressions (VIX upside, S&P downside, […]
Options Vanna Rally
Now a prescient time to talk about options Vanna, and a Vanna rally. Vanna measures the change in delta for a change in Implied Volatility. Long calls + short puts = Long Vanna We view options market makers as typically long vanna. When volatility crushes they therefore must buy stock back to reduce their hedges. […]
Gamma Before China Trade Talks
We started the day negative gamma but had a rally to just above the zero gamma level. There appears to be a sizeable market hedge at 2900 which could provide support for the markets. If volatility breaks the put hedges that dealers are holding will act as fuel to spark a strong rally. The 3000 […]
SPX Distribution vs Gamma Levels
from Heisenberg: you can see when gamma is large and positive the market moves much less than when gamma is large and negative.
The Theory Behind Put Walls
For this example, 2900 in the S&P500 is identified as a strike with large put interest in SPX options. The theory behind Put Walls: We make an assumption that most of those puts were bought by hedgers, therefore market makers and dealers are short those 2900 puts. As a result they must short sell stock […]
October’s Negative Gamma
Here is a brief summary of the October Negative Gamma move so far. On 9/30 around the 3000 level in SPX we calculated a long gamma position for the market, but that quickly changed due to a very ugly ISM print. Once the market punched through the 2970 volatility trigger level, dealers fueled the selloff […]