Author: Doug Pless
Professional Trader & SpotGamma Content Contributor
In this comprehensive trade analysis, professional trader and SpotGamma content contributor Doug Pless delves into the intricacies of trading NVDA on March 14, 2024. Utilizing advanced tools such as Equity Hub and HIRO Indicator, Doug meticulously outlines his morning planning routine, providing insights into key metrics like the Call Wall, Put Wall, Hedge Wall, Key Gamma Strike, and Key Delta Strike.
Through a detailed NVDA case study, Doug showcases how he develops a thesis and directional bias, leveraging market maker hedging flow to confirm price direction. By analyzing the significant options activity and the impact of gamma changes, he identifies trading opportunities and executes a well-thought-out strategy.
Whether you are a seasoned trader or new to the field, this analysis offers valuable lessons on interpreting market signals, managing risk, and optimizing your trading approach. Dive into the full study to discover the strategies and insights that can elevate your trading game.
Planning / Positional Analysis
When I plan to trade stocks for the day, I begin my morning planning by opening my watchlist in Equity Hub. I look at the Call Wall, Put Wall, Hedge Wall, Key Gamma Strike, Key Delta Strike, and other metrics for each stock and compare the values with the previous day. I also look at the Composite View and Put & Call Impact charts in Equity Hub and the Volatility Skew chart in the Implied Volatility Dashboard.
After checking the levels, I watch the SpotGamma HIRO Indicator after the RTH (regular trading hours) open for the stocks that I plan to trade during the day. The HIRO Indicator shows the market maker hedging impact of options trades. Market maker hedging flow can have a significant impact on order flow in many stocks and is often a good confirmation of price direction.
Based on this information, I develop a thesis and directional bias for the day. An example of how to use this information to plan and execute a trade in NVDA is shown below.
NVDA Case Study
NVDA is one of the instruments that I trade on a regular basis. I keep these indexes and stocks in my watchlist in the SpotGamma Dashboard. The watchlist is available throughout the Dashboard including Equity Hub and HIRO. My watchlist is shown in the Appendix at the end of this article.
NVDA Trade Analysis: March 14, 2024
The table below summarizes the SpotGamma Key Daily Levels and other metrics for NVDA that were shown in Equity Hub on March 14 and the previous trading day, March 13.
| 3/13 | 3/14 | |
| Key Gamma Strike | 900 | 900 |
| Key Delta Strike | 500 | 500 |
| Hedge Wall | 875 | 875 |
| Call Wall | 900 | 900 |
| Put Wall | 845 | 870 |
A green number indicates that the level increased from the previous trading day. The Equity Hub History shows the changes in the Key Daily Levels and other metrics for the last 10 days, with the Put Wall for NVDA increasing from the previous day.
The 10-Day History for NVDA is shown below.
The Put & Call Impact chart for NVDA from Equity Hub showed more Call Notional Gamma (orange curve) than Put Notional Gamma (blue curve) above the 900 Call Wall / Key Gamma Strike. This indicates that calls were driving the price action for NVDA above 900. Below 900, calls and puts were about equal.
The chart showed that Call and Put Notional Gamma would change quickly between around 850 and 1000. It also showed that Call Notional Gamma (orange vertical bars) was dominant above the 900 Call Wall / Key Gamma Strike.
The NVDA Put & Call Impact chart from Equity Hub is shown below.
Thesis and Plan
Based on the shift higher in the Put Wall, my directional bias for NVDA was slightly bullish. Based on the high rate of change of Call/Put Notional Gamma between around 850 – 1000 shown on the Put & Call Impact chart, I was looking for higher volatility and a wide trading range for the day. I planned to watch for HIRO Flow Alerts at the RTH open for NVDA and other stocks in my watchlist for potential trading opportunities.
Execution
On Thursday, March 14, NVDA gapped down and opened at 895.77. Traders immediately began buying NVDA stock. As NVDA breached the 900 Call Wall / Key Gamma Strike, a HIRO Flow Alert signaled significant options activity around 9:35 am ET. The alert, shown in the HIRO chart below with label 1, got my attention. NVDA moved up to around 905 and began to reverse lower as traders started selling calls, shown by the orange line and the label 2 on the chart. When traders sell calls, market makers take the opposite side of the trades and buy calls. Since market makers try to remain delta neutral, they have to sell stock to hedge their delta exposure.
NVDA paused briefly at the 900 Call Wall / Key Gamma Strike and then broke sharply lower as traders continued to sell calls. The reversal lower at the Call Wall and falling orange line were signals to look for short setups. NVDA found support at the first profit target, the 875 Hedge Wall, shown with label 6 on the chart. NVDA consolidated for about 90 minutes and then moved lower to the final profit target at the 870 Put Wall, also, shown with label 6 on the chart. NVDA finally began to reverse higher around 12:10 pm ET as traders started buying calls.
The order flow for NVDA is shown in the Bookmap chart below. The reversal lower at the 900 Call Wall / Key Gamma Strike a few minutes after the RTH open is shown with label 3 on the chart. After the reversal lower at the Call Wall, NVDA made a series of lower lows and highs.
Traders continued to sell calls, market makers sold stock to hedge delta exposure, and aggressive sellers moved NVDA lower to the profit targets at the 875 Hedge Wall and 870 Put Wall (labels 6 on the chart). There were several opportunities to enter short positions. Potential entries are shown on the Bookmap chart with label 4.
There were several ways to play the move lower with options including buying a put, buying a put spread, or selling a call spread.
Key Takeaways
- The HIRO Flow Alert provided a timely alert to signal significant options/hedging activity and drew attention to NVDA for potential trading opportunities.
- HIRO provided a clear signal that traders were taking negative delta positions (selling calls) and market makers were selling stock to hedge their delta exposure.
- The 900 Call Wall did its job and acted as resistance as expected.
- The 870 Put Wall did its job and acted as support as expected.
Appendix
My Watchlist
Terminology
The Call Wall is the strike with the largest net positive gamma in the underlying stock/ETF. It can act as resistance, since market makers will most likely have to increase delta hedging at this level. The Call Wall can also indicate traders’ expectations for the upper end of price movement. A shift higher is often a bullish signal. A shift lower can be a bearish signal.
The Put Wall is the strike with the largest net negative gamma in the underlying stock/ETF. It can act as support. A change in the Put Wall level can be an indication of shifts in large put positions. A shift higher is often a bullish signal.
The Hedge Wall is a proprietary SpotGamma level where the largest change in gamma is detected. This strike indicates where options dealers’ risk exposure changes significantly. It is considered a major support or resistance level.
The Key Gamma Strike is the strike with the largest total gamma position for the underlying stock/ETF. A large amount of the options market makers hedging position may be tied to this level. This level often acts as support or resistance. In addition, SpotGamma studies suggest that the movement of the Key Gamma Strike is correlated to stock performance.
The Key Delta Strike is the strike with the largest total delta. When the Key Delta Strike is ITM (in the money) at expiration, it can signal a potential reversal of the underlying stock/ETF due to market makers’ unwinding large hedges.
The Composite View chart shows how fast gamma changes at different price levels. The rate of change of gamma is shown by the SG Momentum Indicator, plotted on the y-axis. A high SG Momentum Indicator indicates gamma changes more rapidly at that price level. It also indicates higher expected volatility.
The Put & Call Impact chart shows the amount of Call Notional Gamma and Put Notional Gamma at different price levels. This chart provides a clear visual representation of the put vs. call domination at different price levels. The steepness of the lines also shows the rate of change of gamma. The steeper or more vertical a line, the higher the rate of change of gamma at that level.
Resources
For further definitions and information on the terms used in this article, please see the SpotGamma Support Center for a list of dozens of SpotGamma proprietary terms, as well as context for common market terminology.
