HIRO Webinar 10/11/22
[00:00:00] What we’re here to do today is to discuss some of the changes that we’ve made in Hero. Whether we launched last Friday, and just talk about what those changes are and how you may, may be able to take advantage of those.
So the basic dashboard obviously looks the same for most of you who have been looking into this. But the big change is this slider. That’s kind of the first thing that you’ll notice. So what I wanna do is I wanna pop up the screen and zoom out a little bit here and talk about what these changes are exactly.
The first thing that you’ll notice is the signal looks a lot different, right? You can see that there is much more of a a wave form to it. And what we’ve essentially done is we’ve reconfigured how we display, or we’ve re, we’ve reconfigured the way that we display the signal so that what you used to get was a cumulative rolling sum for the whole day.
So every single option trade that takes place, we estimate the hedging impact of that. And then we sum that over the whole day. So that is equivalent to what you see on your screen here, and what you can notice is there is, there’s kind of a smoother, longer wave to this thing, right? I’m not sure what [00:01:00] better way to sort of describe this, but basically what you can see is that yes the market is showing us the options.
Market is showing us that for. Fighters as the as the market kind of goes higher. We first had a jump in positive delta trades. And so this is a valuable signal this morning as we kind of tested the lows, right? This is the SPX opening rate on or just kind of below 3,600, which is a the, the put wall.
And so positive Delta trades came into the. As we were testing those lows, and that is the reflection, or that is a sign that traders are either buying calls or selling puts, as you all know. So if we look at this in the spiders, you can see that the predominant activity here seemed to be put selling right.
Now what happens is when you look at this cumulative indicator over the day, you start to anchor to these levels, right? It’s just a natural human. You know, you kind of anchor to this hive of the day such that, for example, right here you go, well, that’s not that big of a hero signal, right? But it turns out this is actually nearly 50 million of negative deltas that came in in this period.
But because you anchor it to sort of this 700 million number, it [00:02:00] loses context a little bit. So what happens is when you zoom in, . What this sliding bar does is it changes the rolling period at which you’re looking for the signal, right? So instead of looking at it on a rolling basis for the entire day now you look at it at a cumulative rolling basis for say five minutes or 10 minutes or 30 minutes, and what you can see is that, The signal becomes arguably we’re gonna make the argument here that the signal becomes much more active and you can better take advantage of it because of that.
So if you remember earlier we were talking about that 50 million change, right? But you’re anchored to 700 million. Well, suddenly you can very easily see how rapidly positive deltas came in as the market rip here. And then you can see that flow fade immediately and the market respond in kind. And you can see these inundations right in and out through the whole.
Now what makes it even more powerful is when you zoom in on the data. Cuz again, there’s a lot of this, there was sort of a lot of anchoring was one of the issues. But the second thing is you just lose context over the order flow when you’re watching from a full day picture, [00:03:00] particularly as we get into the afternoon.
So the second thing that we found to be very powerful is just simply zooming in on the signal here. Right? So here I’ve zoomed in to about half an hour and I have this five minute bar. I have some data that shows that the five minute bars are arguably the most effect. We think so far looking at this flow.
But what you can see now is like, yes, very clearly. Now, okay, look off of these lows we had positive delta order flow come in the market responds in kind, and then that order flow fades, right? So you can see this actionability excuse me, actionable order flow coming in. This is what is happening right now, right?
Traders selling puts are buying calls. You can see that flow come in actively and then fade actively. So you get a. Better senses to the rhythm of the order flow. And when you combine this order flow with what we think should happen based in the o in the opening or start of day notes we think it becomes much more powerful.
So what do I mean by that? Well, when we were looking at the, the data from this morning, right? We said, Look we believe that 3,600. Is a major support level in the market, right? And so what you wanna look at is, okay, what is happening in the [00:04:00] market, right? When the, when we break 3,600, right? Because we think that should be support.
So what will we, what would we expect to see? Well, we be looking for either put sellers, right? People saying, Great, we’ve hit support. Let me take my trades off. Or you’d be looking for, put buyers. If we’ve got put buyers or negative delta trades coming in the. They’re gonna say, Okay, this is no longer gonna be support because people are continuing to buy puts.
But what we actually see here is, is consistent, positive delta order flow coming from put sales and call buying in this case. So what you see is we, as we break down here, you can see that they’re con, there’s this continuous flow or thrust up, right? You can see these. Of positive deltas being sourced from put selling come into the market.
The other thing that’s valuable here is now you can better put into context what is big order flow, right? You can see that there is a, a somewhat max in min to this period of this order flow, right? It looks around, call it a hundred million dollars, right? A peak. Right. So if we get something over a hundred million dollars now, you know, or you contextually, you can put that in context and say, okay, this is really [00:05:00] significant cuz we’ve kind of gotten up over this a hundred million dollar mark.
The other thing is you can see very quickly obviously how, how these things change. This was the key dip, kind of the key moment. We hit 3 56 spiders and we saw call buyers come in, and that was later met by put sellers again. And that led to a pretty solid bounce in the market. Now, if we zoom out again and we can push out on the order flow, you can again re regain context for what’s happening over the course of the day.
And so, you know, when we do that, we could say, Look, what’s interesting in this case is that as the market is now pushing higher, when you look at it on a, on a bigger level, we haven’t generated overall. A whole lot more negative delta flow in the day. Right? The order flow actually has been fairly muted over the day.
The biggest order flow from this morning was put sellers and as the market rallied, those put sellers backed off. Now that would make sense, obviously, because if the market is, you know, significantly higher, well the opportunity to sell your puts is going to start to drift off as well, right?
Because, you know, if you’re long puts and sudden of the markets up hundred percent, well there’s just not worked as much now, so you’re not gonna gain as much [00:06:00] delta. So again, you can, you really use this order flow to put the, the market into context. Now the other thing to really touch on here is that we have made changes to the signal.
And this is really the another huge driver of what we wanna discuss. The cumulative signal that we used before was analyzing every single trade that came into the market. And what we found is there are certain types of trades that are more arguably that that better show or portray the impact of hedging flows in the markets.
Now, I, I’m not gonna get into what exactly we are doing, and I want to get into some of our proprietary logic is because a lot of what we do is sort of, you know, tracked and emulated elsewhere. But. What I wanna say is we’ve made some changes to the proprietary logic of how we track the order flow that comes into the market.
And so for those of you who watch closely, you may notice that there are no longer for example, these giant gaps up right in the order flow where we’d see really huge block trades come in and you just get a big spike. In the hedging logic, we’ve now figured out [00:07:00] how to better contextualize those big trades, for example.
And we’re doing a better job of emphasizing the trades that we believe have more impact on the market, and we are getting a better signal. And this is proved, or shown in the stats, which I’m gonna get to in a second. So you’ll see just again, over the course of the day, if you are looking at the signal on a cumulative full day basis, you just see much smaller giant sudden spikes in the overflow that don’t seem correlated to the to the transactions.
And so that gives you, again, better context for what is actually happening in the market and what the order flow is actually telling you. Because for example you don’t see these trades that arguably don’t have the same hedge impact cuz they’re handled by say, an upstairs desk or they’re hedged before a trade takes place.
So again, as we’re watching the market here, you know, just to provide some context cuz I think that live will help. If you look at what is happening in the marketplace right now today. For example, we opened below the put wall, right? We said, We think this area’s gonna hold in our, in our morning note.
We need to respect it if the market trades lower. [00:08:00] And we traded almost a full percent lower just over the support level that we noted of 35 58. We traded down 35 66, and then we’ve rallied very strongly back, right? So how could you know, right, that this, would we get this bounce as opposed to just sort of trading lower?
And I would argue that if you were watching the hero data this morning, you could see that put selling and call buying were the predominant sources of order flow. In trading this morning. And that can give you that, that that context to wanna buy the dip, right? So if I zoom back out and you can see what I’m talking about again, as, as we’ve already covered.
So what I’m looking for now is yes, we got the positive delta order flow that you can see here. You can see those fits and spurts, obviously a very powerful, big Sources of put selling, right? When I zoom in again, you can see here, when we were at the lows of the day, it was very big put selling coming in.
And now what we’re seeing is with the market back up to the highs, right? We, we’ve just sort of gotten to this area that we said was resistance of 34. We were calling it 36 48, So we’re just off of that [00:09:00] resistance level. You could see that the options order flow has now shifted much more. Right. We had very big in the, in terms of context, again, we show you this context cuz you can zoom into 10 minutes on, on these bars.
This is really big order flow from this morning. And now you can say, Okay, look at the amplitude, right? Or the size of these waves. They’re smaller now in size, right? We had a big call buying here. The market moved up, but now you can see, okay, the amplitude is smaller, right? So the options market is no longer as active as it was.
This is one thing it’s telling me. And the second thing is it’s starting to look like the order flow is getting more negative. Now this is lining up at the point where we were looking for resistance around 36 48. So the pieces really come together and you’re be able to better able, in our view to identify this order flow.
I’m gonna take a couple questions here. They have a says off the subject is the delta ratio and equity have sim principles delta tilt. I will have to get to that one after Allen. . David, thank you for the note there. Watching the not flow, what timeframe work works best. Chris, thank you for that.
So I switch all day, right? I think five. You went on to five or 10 minutes [00:10:00] depending on how short of a time window you’re actually trading. But I think those five or 10 minute windows are statistically showing us some of the best data. But I do often zoom out, right, Because you also don’t wanna lose the full context over what’s happening on the day, right?
Like what is the general theme of what took place? Well this morning, clearly positive Deltas when the market was lower. And now what you’re seeing is as the market rallied so much, we’re, we’re definitely getting negative delta order full, Like very clear to see that. Now if I’m a little bit more active of, of a trader, I want to zoom in.
I think generally when you keep your window here about half an hour, you can really identify these peaks a little bit better, like clearly positive delta order flow. Continuing here, market rallies into that. We hit the highs of the day and now you can see negative delta order flow is the new theme as the market is testing this big resistance level, right?
So you can really start to put these pieces. And, and that is what we think is really most powerful. So, okay, let’s put some data to this Right now. This is our preliminary data from this new from this new order flow from the new hero signal. And so what [00:11:00] I want to touch on here is we are going to be very closely tracking obviously all of this data and putting out a lot more statistics around this.
So first, what I want you to see here on your X axis, what you’re looking at here, and this is a four days worth of water flow, you can see that the percent return, this is for the spider. Is on the X axis, right? So 20 Bs up, negative 20 Bs here on the Y axis is the five minute cumulative sum of the hero signal for spider.
So if you were to set your dial to five minutes, right, this is what this is monitoring. So again, on the x axis is the price change, forward price change given the last five minutes of here at order flow. And what you can see is there is a strong correlation between big positive. Hero signals rolling over the last five minutes and positive four returns in the s and p 500.
That’s all of these data points. You can see there’s a kind of a 45 degree angle to this, to this depiction here, right? And in negative deltas right, we have negative hero signal over the last five minutes. [00:12:00] There tend to be negative hero signals. Right. Excuse me. When you have a negative hero signal over the last five minutes, you tend to have negative one minute forward returns on the spiders.
So what this is simply saying is when we get a bunch of positive heroes or a bunch of negative hero signals over the last five minutes, what happens to the market? Well, positive hero signals clearly are correlated with positive returns in the s and p negative hero signals clearly correlated with negative returns in the s and p.
And what’s fascinating about this in particular is like spiders, right? Is a massive market. There are tons of different types of water flow coming into the market, right? At Spot Gama here, we are always saying, look, options order flow is a major part of the market. Sometimes it is the dominant order flow in the market, but it is not obviously the consistently every minute of every day, the biggest order flow of pressure.
So this is showing us that when the big, when heroes get big, right, there’s a price impact associated with that. Let’s show you another one, which I think is really interesting. This here is Tesla. And you could see that it’s even more pronounced and I think it’s more pronounced because there’s [00:13:00] not the same amount of index flow like spiders has to react to the future’s trading SPX index flow, right?
There’s all sorts of macro flows kind of going in there. And in Tesla, which has a giant order options order complex, you can see that this is even more pronounced. What I mean by that is, again, positive hero signals over the last five minutes show even better positive returns, right for the stock. And then negative hero signals over the last five.
Even larger negative returns for the stock on a forward one minute basis. So, you know, the statistical evidence is, is clearly there. The other thing I wanna note about this is if you look over the last five days when I took this options order flow signal, you know, you can see that we had some pretty big, you know, negative returns particularly yesterday or that would be in Friday’s session.
So, you know, the market overall did have a fairly neutral basis to it, except. On Friday. And so, you know, if you were to sort of discount or adjust this for market returns, which we which we are not doing here, this is simply the forward returns we think that the, that the signal would even be a little bit stronger, right?
Because there is obviously, if, if macro funds are selling because of a hot [00:14:00] jobs number and the options market is showing you positive returns during those periods, we think that, that, that actually indicates that the signal’s even a little bit stronger. So Chris, I hope that helps your question.
That was a great question. Thank you very much. And then so Paul mention, or Paul’s a great question here about the zero DTE Theta junkies. It seems like five minutes is a tattoo jumpy. Yeah. And, and Paul, I would agree with you on that. And so is it too jumpy? Well, let me again just source back to the original what we were originally talking about, right?
If I was a zero DTE junkie, generally those are, those are the people who like to sell short term motor flow, right? Meaning I wanna sell today’s expiration if I was reading the morning note, right? And I can bring that up just for context. If I was reading the morning note I would look up and say, Okay, where are the big support and resistance lines for the day?
You know, what does the founder’s note say in terms of support levels? What am I watching out for? And as we mentioned here, 3,600 was the big level to watch. And we, we give some edge to that holding. Okay. So that could prove to be true, right? And, [00:15:00] and it could not be proved maybe the market breaks.
What is it that I would wanna see, or what do I wanna know? Gimme a little bit of what was that meant? Sorry. Sorry about that guys. So what, what is it that I wanna know, right? Well, if the market tests below 3,600, right? Which is this gamma area essentially here, I wanna see positive gamma excuse me, positive delta order flow coming into the market because that’s gonna bolster the idea that this proves to be a support lo or excuse me, Yeah.
Support level. Right. When I come down on 3,600, are people putting on positive delta trades or negative delta? If I was a futures trader, I would consider buying right this break or the test under 3,600 if those positive delta come in. Cuz I know that the feedback mechanism should bring me back to 3,600.
But if I was a short term options seller or a short term options trader, I’d wanna do the same thing, right? Maybe I wanna sell, put spreads. Because I see this positive delta order flow come in as a, as a way to back up the idea that the market’s gonna find support. Same thing right now with the market trading at the highs of the day, right?
Maybe I wanna sell some calls above because the order flow and the options of the market has [00:16:00] clearly turned negative as the market was hitting our resistance level. So you can see these patterns are very clear, right? And yes, when you’re zooming into the order flow on a little bit of a short term.
You could say, I’m not a, you know, super active day trader, but it doesn’t matter because you have your support and resistance lines that are there for the day, right? The positions you wanna lean against for whatever your timeframe is on the day. And then when the, when the real time options order flow is confirming.
Right, These signals then you can elect to put your trade on, right? So again, if I, if I was like, look, I think we’re hitting spot game of resistance but the positive delta order flow continued to go up, I would be much less apt to wanna suddenly start selling calls or betting on the market, reversing if this order flow continued to be very positive on the day.
For example, like if we were here and we got this type of a bar where we have essentially 300 million of positive deltas coming into the market. I don’t wanna short in front of that, Right? Not a good idea. But instead here we’re actually getting the reverse, right? We’re getting some some sellers coming into the market.
So Paul, I hope that helps [00:17:00] to shift and adjust the context. The context. Yes. You know, zooming out is another helpful way to, to gain some of that similar context. The thing that we don’t want you to do necessarily is anchor too much to the high and low of this order flow, right? What you, what you care about is the change over a given period.
You know, and again, if you zoom out on 30 minutes, well then, like this big drop here suddenly starts to lose some of its context a little bit. Be right, because you’re, you’re anchoring to that high level. So that’s why we think the zooming in is helpful a lot because you stop anchoring quite as much. But again, the nice thing about these shorter time periods too is you just have so much more context over what’s a big delta number and what’s kind of a negative or a small delta number.
Our high frequency trading aligned with.
Sorry trading our high frequency trading aligned with positive and neg negative delta trading cause of options. I’m not entirely sure what the question is, but yes. So a lot of people think that, you know, we’re just looking for retail order flow in here and we’re not. What we’re looking for is [00:18:00] active electronic order flow, right?
That’s coming to the market. Anything that’s going to draw hedging flows from dealers and market makers. So. Whether that comes from a high frequency shop, like a Renaissance technology or someone else that’s trading very quickly in and out of options or you know, Wall Street bet guys, in a way, it doesn’t matter us, right?
We’re just trying to pick up that oracle that we think is going to have to be actively hedged by the market. That’s some of the changes that we made to our proprietary algo. We’re we’re giving more weight to the trades that we think matter the most. And so, you know, again we are launching a a couple of filters to allow some alternative views into the market addressing some of these pockets of, you know, who’s doing what, like retail.
But the overall point is that we are looking for whatever order flow comes in that’s, that we think is going to draw hedging flow. That’s, that’s really what the point is. Of the new algo, and I think the results are pretty clear that this is an improved way. Look at look at this order flow.
Could I please explain the mid-roll real live application please? How is this applicable? Yes. So what you’re seeing here is that [00:19:00] when we have positive delta signals over the last five minutes, this is this top right cord. Quadrant, right? So this is positive delta order flow on the top of this Y axis, negative delta order flow or negative hero signals on the Y axis, right?
So big positive hero signals on the top, negative hero signals on the bottom of the Y axis, right? This is the forward price change of spiders, right? So given the last five minutes of hero signal on a, on a rolling sum, right? So I sum the hero signal for the last five minutes. What happens to spiders for the next minute of.
As you can clearly see, there is a strong relationship here between positive five minute hero bars, right, or hero sums. Again, so the same as looking at the five minute rolling indicator here, right? So this five minute period here, very positive, obviously, right? This five minute period here, very positive, right?
Those periods are associated with positive [00:20:00] one minute returns. on the day, right? So in theory, if I watch the hero signal, I see a big five minute positive rally right in the hero signal, then I should expect or anticipate to see one a, a rally in spider. This is what this data is telling us. Similar thing, if we can see negative delta order flow or negative hero signals, right on the, on the Y axis here in the last five minutes, then spiders should be pressured.
This is what the data is telling us, right? So anonymous, let me know if that didn’t help clear that up. Wanna make, wanna make sure that’s, that’s clear. Paul mentioned that he sold below through 55. News Hero did not get stopped out. Great. So there’s an active trade there. Paul. Glad that. Worked out for you.
And again you know, had that put flow showed up this morning, right as being put by negative Deltas driven by, you know, put buying in particular, then you, you just want to get outta the way you go. Look, that support level, that spot game of thought was gonna be there this morning, not there because we could see this persistent negative delta order flow, for example, like right here.
Then, then you wanna hold off maybe weight. So I’d love to hear that you made a a, a good trade. Can I explain S sl v, it’s trending, it shows positive ga, but chart shows negative delta. Yeah. [00:21:00] So let’s take a look at slv. The, these ETFs are tricky particularly the ETFs that are based on commodities, oil, gold, et cetera.
And the reason is because you don’t, you know, these ETFs are, are tracking this commodity, right? So if commodity futures come out and they’re doing something crazy, SLV is gonna go. , the options order flow in something like slv is not going to be, it would have to be much larger in our view, to wag the dog, Right?
So in other words, what I mean by that is you’d have to have tremendous amount of call buyers in SLV to have it wagged back into the actual commodity and move the commodity itself. So you really, you know, a couple million bucks here of Delta’s trading is. And all likely not gonna be enough to move move the commodity itself and move the options market.
So, you know, you wanna be a little bit wey of that. I think there are some pockets in time where you’ll see, you know, big put buyers come into sov or big call buyers come in and that is like a retail order flow. But I think a lot of times you can see options straight, an SOV [00:22:00] that are just hedges maybe, or they’re related to something traded in the commodity itself.
They’re arbitrage trades, et cetera, and not something that is actually like, you know, retail call buyers. So SOV should go.
So Chris, I hope that helps. You know, again, it’s very tricky trying to trade the commodity here. I mean, this looks obviously like a, a tight correlation, but you again have to have such big call buying that svs gonna go up and svs gotta go up enough that it’s gonna move. The futures right, The silver futures, those correlations get a little bit tougher to prove.
Hey Joe, how are you doing? Ju can I tell us the interpretation of flow and strikes that are on today? Yeah, I came in a little bit late. I I definitely can. Yeah. So just to touch on this again, cuz I think it was, you know, really important the, the, you want to, the whole point of hero right, is to put the order flow in context, right?
And there’s two levels of, of context for order field. There’s what does spot game is see what do we see at the start of the day? What are the big game of. What, what, what should we expect, right? Is there a trigger, like the cpi? Is there a big support level that’s been tested several times? Should we look for vol to come off [00:23:00] positive or negative game environment or like all those types of, of topics that we discuss in the morning, right?
So that helps you set up the, the context for the trading day. In this environment, we have big negative delta positions, right? So we call for big directional swings. We talk about this all. You know, don’t play for five or 10 handle moves here. You’re gonna get 50 handle, you know, 1% moves are gonna be common order flow.
You said 3,600 should be the support level, right? You wanna be careful because there is a, you know, if it does break cuz that that spider put wall didn’t move down but 3,600 should still be able to hold as we think we’ll be range bound ish, kind of into the CPI number and that’s what our expectations are.
So if you sort of subscribe to. And you look at when the market opens, we trade lower, right? We’re below the 360 line here in spiders that’s roughly below the 3,600 put law. And we say, Look, 35 58 is the number you want to pay attention to. We actually only traded down to 35 60 68 I believe this morning.
But what you’ll notice is even though the market traded very weak this morning, the order flow on the [00:24:00] day was positive, right? We had positive delta order flow in the market, and it actually jumped to be very. You know right around 10 30 or so. Right? So that tells us that the options market is in sync with the idea that 3,600 should be support, or that we should buoy or respond back up into 3,600, right?
Because we are seeing positive delta order flow that’s put sellers and call buyers. Had we seen the opposite, Right. Call sellers and or put buyers. Then when we break support, you go, Okay. Option traders are now doubling down on shorting this thing. We’re probably gonna move to the next level of support.
Right? So that’s that 3,500 put wall, or three 50 put wall. Similarly, we’re just talking about this live, right? We’ll play back this recording. We said, look, we got, we put the high of the day in the s and p I think was, is bring up where the s and p chart is the high of the day in the s and p. You know, we look for 34 48.
That was from our morning. We’re just under that [00:25:00] level, as you can see here, and the options order flow and the SPX has turned south. Right? Particularly in the spiders when you look at that. But we’re no longer, we no longer have these positive deltas that were a feature of the market for most of the morning.
Right. We we’re turning south. So Joe, as you’re watching the market go, this was a spot GA of resistance line, right? 36 48. And look what happens. The options order flow suddenly is turning negative Deltas on us, right? Call sellers and put buyers. Now that we’ve rallied all the way up to that. . Similarly, if we hit that 36, 48 level or 36, you know, 40 ish resistance line, right?
But the order flow is continuing to be very positive, Deltas, well then maybe you don’t really wanna short that, You don’t wanna bet on the train stopping. Right. So this is, this is the value you think that heroes are providing. It’s helping to confirm. That intra day order flow, the, the context that we set up in the morning hero can really help confirm that.
And then obviously when you start to look at the single stock base, you know, you get a whole lot more be beneficial information as well. Some of these stocks that have. Persistent big options order flow, [00:26:00] particularly like when they’re not as associated with the index, you know, like Apple or something where it’s a major constituent.
The correlations actually get a little bit better in the data. You can see, you know, negative delta order flow and then bam, look at this positive delta order flow coming in. In the short term right here for game stop that’s associated again with the bottom and the stock. And you can change the picture here and zoom in and you get a whole different context for what’s happening, right?
It, it really changes the view. Just seeing, like, again, if, if a rush of call buyers come in and dealers suddenly are, are sitting on a whole bunch of negative deltas that have to be hedged, right? You’re gonna see it in these shorter timeframes, much more actively. And we think that makes the, the signal much more power.
. Yeah. So the five minute hero data right, is just full. We look at the rolling data for the whole session, right? So every five minute bin we’re looking at in this data. And so I think that answers your question. Anonymous basically said is this signal only applicable to us close, or do I mean any five minute interval?
I mean any five minute interval? Paul mentions that CH head seemed to work better now. You just gotta work for Sbx. Yeah, the, these Chrome and Edge, just [00:27:00] for one reason, I seem to work better for the internet as a whole, I would say . And so occasionally makes some update three. I actually have to clear your cash for an interview who seem to maybe have a little funkiness with the hero page here, or even spot ga.com if you hold shift and hit refresh on the Chrome browser that clears your cash and should help to improve things if any.
Can I talk more regarding s spx, Spider and Es? Like today, spiders a negative delta and s spx has gone negative and it’s close to zero. Okay, so good question. First of all, what is es? Es is a combination of s sp X and s p Y order flow, right? Cause in theory the spiders and the spx, well, not in theory, they are part of the same complex, right?
They’re all tied to the S sp X index level which is related to the price. The top 500 stocks in the United States, right? So there’s this sort of like circuitous feedback loop, right, of people made by spiders, which would then feed back into the index, which now feeds back into single stocks. Or maybe people suddenly buy tons of apple and Tesla stock that makes the s and p index goes up, which raises the [00:28:00] price of spiders, right?
So they’re all linked. Same thing as futures. People start selling the, the heck outta futures that’s gonna feed back in an index in the single stock. So everything is kind of related now. . We historically have talked about spiders as the thing to watch, and we still believe that, right? The spiders offers us the cleanest order flow signal we believe.
And why is that? Well, the bulk of spiders is electronic order flow that we think more has to be more actively hedged. Big institutions tend to use spx, and we think a lot of times those SPX hedges the, those big orders are hedged before the S sp X print takes place. So we have a whole discussion about this.
On a u on our YouTube video I’ll try to pull that up where we give a hero overview. But basically what it is, is that when you look at the way that orders take place, if you call up a desk, right, and you place an order like JP Morgan Goldman and say, I wanna buy 10,000 SPX calls, right? The, the bank or the desk that puts you up is probably gonna get their hedge in place first, and then they’re gonna [00:29:00] print in.
Manner, mechanism, the actual options trades. So you, So they had the benefit of slowly hedging or deciding how they want to hedge or how they wanna print, whatever it may be. Write that block order flow. So we don’t think that the signal from those positions are as impactful. Now, we’re now When the options order flow is, is electronic and just suddenly, you know, being swept across the market and market makers like Citadels of the world and, and susquehanna’s of the world are taking the order flow.
They’re sitting there waiting and suddenly their screens are gonna start lighting up because people start buying calls or selling puts. They have to actively hedge that, those trades after the trades have already taken place. Right? Cause they don’t know, they don’t have the benefit of someone calling up and say, Hey, I’m gonna buy $10,000 from you.
Right? They’ll suddenly just see some. Big lots of calls, sweeping and hitting their order books. So they have to actively hedge that that order flow, right? And so the spiders tends to be more electronic in nature, which is, and not only that, it’s also a more active complex, right? We talked about this this morning [00:30:00] actually, that if you look at the size of the of the spider order flow on any given day tends to actually be larger than what you see in the spx.
So that’s why we’ll tend to focus a little bit more on spiders. The second thing is that when you look at spx, Before we modified and, and added some of our proprietary logic to the hero signal, you would see these block prints go off in the spx. It would really skew the data quite a bit more. But the SPX has been a major beneficiary.
The data from this has been a meta me, has been a, Our new algo has really benefited the view on the SPX quite a bit. We think it’s much more of a usable signal now in the SPX complex because of our, our new improved logic. And you can see that it on the short term, you know, 30 minute basis here, you can see again, you know, we hit this low and you get positive Deltas coming in.
Here’s a spurt of negative deltas actually seems adversely correlated, but then, you know, again, we get this pod of delta overflow in the market seems to rally again. So you know, if you look at just the size of this order flow, right, you can see 150 to up to 50. So this is like 200 million over this whole timeframe.
You know [00:31:00] that that 250 million is done in the spiders in, in the course of five minutes, right? Like it’s just a, there. A whole lot more going on the spiders, which is why we think from an options complex, it is typically more impactful. There are those occasions, right? JP Morgan trade goes up or something where you wanna watch some of that SPX order flow maybe cuz the notional numbers get so big so fast.
But again, you know, you just saw like 200 million in spiders or 200 million was a swing over the whole day, right? For the spx. Here an equivalent swing for spx, Excuse me, for the spiders. We go from 500 million down to negative 400 million. There’s, you could just tell the magnitude is is is a whole lot different.
So again, I like to use the spiders. I will also check the queues, right? Because on occasion the queues, which is generally trade smaller but what’s going on in the tech space, right? It’ll be fairly decent sized order flow, but I wanna make sure. Sometimes the spiders can be, let’s say, rallying and we’re getting negative deltas and spiders.
But when you flip over the queues, you’ll see very positive delta order flow. However, queues in the same way that we were mentioning just a minute ago, when you’re hitting [00:32:00] resistance queues two, you could, you could see right, the, the options market is not as interested. In positive Delta order flow with the, with the mark at the highs here, right?
I mean it’s, we were talking about this rolling over the last 30 minutes and you could see it playing out here in real time, right? That, that those call call buyers, right, and put sellers are not as interested with the market upper percent as they were, you know, back here or when we’re testing kind of these put walls.
So again, you know, real time. We, we discussed this in real time. Hopefully it’s helped you all sort of understand the, the context and the value. Here is the s and p’s off about, I dunno, 10 handles really since we’ve been discussing this idea that, that call buyers are really drying up. And so we I think I’ve kind of chewed through all the questions I wanna ask.
So I spent 500 premium to gain 50 deltas of exposure if I buy. January, 2024 50 Delta option A, I may spend a hundred dollars on that option, right? So I spent 10 times more dollars to get a same Delta [00:33:00] exposure, right? So when you, when you watch the market through premium it totally can skew, you know, it’s gonna rhyme with what’s taking place, but it, it’s, it’s actually gonna kind of, it could be off by orders of magnitude.
And so I just, one word of caution or one reason why we don’t. The options market in terms of premium, it’s sort of like, don’t pay, you know, why don’t we pay attention to open interest? Why dot we more focus on gamma. Cuz you have a lot of open interest that’s so far outta the money. It just, it doesn’t actually relate to what is actually needs to be hedge or what is actually trading.
So just two quick points there as I knew we were getting those, those questions before. And then, sorry, I’m just looking here. I will edit this outta the video so people don’t have to listen to me. Say I’m an A the whole. , but we did have the hero live indicator, and I believe this is the video here.
If you go through this video, this explains, you know trading when you trade, when an order goes through a desk, right, what’s the difference between an order going through a desk versus something that is electronically goes, like, goes electronically, right?
[00:34:00] So just wanna make sure that you guys are aware of all that. And any questions, please send them to firstname.lastname@example.org. And we love to hear questions, comments. Are you having success? How are you having success with all that? So we’re focusing on the products with all of our might right now, and then we’ll, we’ll switch. But appreciate that you want. To, to support the brand. So we’re, we’re moving in that direction. Thanks. All right guys. No me entering. Good luck on the rest of the trading session. And again, any questions
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