Doug is a full time trader from the US focusing on futures and equities. Reached him on twitter!
As we have discussed previously, many traders open bullish option positions early in the week with short-term options that expire at the end of week. As traders buy calls and sell puts, market makers take the opposite side of the trades, selling calls and buying puts. Since market makers want to remain market neutral, they buy stock to hedge their delta risk. This cycle of bullish option positions and market makers buying stock to hedge tends to drive prices higher earlier in the week in many stocks popular with retail traders and others. At the end of week, as out of the money calls start to lose value, market makers begin to unwind their long stock hedges and stock prices tend to drop.
Given this scenario, my strategy is to look for long positions in stocks with actively traded options early in the week. As an example, my thesis was that market maker hedging flow would be bullish on stocks like AMD and SPCE on Tuesday, June 29. As shown in the two charts below, the SpotGamma HIRO Indicator told a different story for SPCE. HIRO tracks option trades in real-time and displays the hedging impact of the trades on a Bookmap chart. While the hedging flow was bullish all day for AMD, it was bearish for SPCE. In addition, the Equity Hub showed that the Key Gamma Strike had dropped from 60 to 55. Since my thesis was bullish, AMD was the better trade rather than looking to buy the dip in SPCE. HIRO can help to confirm your thesis before placing a trade.
