SpotGamma.com makes model driven forecasts based on the open interest in S&P500 (SPX, SPY) options. Using this data along with some proprietary analytics we produce price and volatility targets which can be used to supplement and trading strategy.
Below is information and outside documentation supporting the options spot gamma model thesis.
There are substantial positions in the options and derivative complex linked to the worlds foremost equity index: the S&P 500 (SPX). The positioning and hedging of these large options positions create movements in the SPX (SPY, E-mini Futures) which we believe can be forecaster. More importantly our view is that these trading levels are actionable and source of alpha or trading edge.
Large banks operate similar models:
Wall Street Journal: Investors have noticed a force some call a ‘gamma trap,’ and use tools to estimate its size and direction in order to predict market moves
Nomura via Zerohedge: However, we would see that position “flip” to “Short Gamma” down at 2978, or 2974 ex the 8/2/19 expiry
More From Nomura: ‘dealer gamma’ has normalized in the last week, and as Nomura’s Charlie McElligott notes, we should see a more stable / insulated and less “chase-y” trading environment which can engender further restoration of sentiment.
JPM: Indeed, many investors watched the past few days how the S&P 500 was squeezed higher, and there was frenzied buying of upside call options. This was not as much a bullish sign, but in part caused by closing of large option positions that were supplying upside S&P 500 volatility and gamma.
CNBC: …some Wall Street analysts are using their estimates of dealers’ gamma exposure to predict the market direction.