Full Market Makers Delta Hedging Course For Traders (10… — Transcript

As a trader, you can't avoid risk entirely, but you can maximize your chances of making big profits with the right tools, data, and strategy. You'd be amazed by the tools we have access to today, and you're missing out if you're not using them. In this video, I share with you a webinar I sold for hundreds of dollars a couple of months ago, in which I go over everything you need to know to understand the effects of options on the market and predict price movements before they happen, so you never get trapped again. We'll cover all the fundamentals about options Greeks, the role of market makers, how they influence the market, and how you can profit from it. This is basically a full-length options trading course for free. This isn't going to be your basic trading video. I'm going to be showing you exactly how to perfect your entries through options positional insights while taking less risk than ever before. Let's get into it. So, the title of this course is going to be "Beneath Options: Decoding Positioning Effects for Traders." Right, I think we're all traders here, and we want to understand better the effect of positioning and how we can benefit from it. So, let's begin. This is going to be the broad outline for today's presentation. So, we're going to go over the technicals of options, you know, just some basic fundamental definitions. Then we're going to go over market makers, delta hedging, and how we can use this information to be able to play some trades, right, applicable uses. So, technicals, this section is going to be split into three different parts, of course: option fundamentals, just going to go quickly over that, then we're going to go onto the first order Greeks, and then positioning. So, to begin with option fundamentals, what is an option? I think all of you guys know what an option is, but let's just go over it pretty quickly. It is basically a financial contract that grants rights to owners. Right, there's always a buyer and a seller in the option contract, and it grants the right to the person who buys the option to either buy or sell the underlying asset at a set price within a defined time frame, which is an expiration. Okay, so there's two types of different options. There's the calls and there's the puts. The call grants the owner the right, but not the obligation, to buy the underlying. When you buy a call, usually it has a bullish outlook for the person who buys the call. Right, on the other hand, the put grants the owner the right, but not the obligation, to sell the underlying. So, when you buy a put, generally this has some form of bearish outlook. So, there are different parameters with respect to an option that defines it. Right, so of course, there is the underlying to which it is tied. So, for instance, we're going to be covering mostly SPX here, so SPX, right. So, there's the underlying, there's going to be the type, whether it's a call or a put, there's going to be a strike price, all right, and an expiration date. And on the right-hand side, you can see Interactive Brokers option chain, mobile version, on which you have different combinations of expirations, strike prices, and of course, you have the calls and the puts separated on each hand. So, one thing to note with respect to options is that their pricing is not linear. There is what we call convexity to it, and not only that, it is multifactorial. All right, there's a lot of different parameters that come into play that help define the pricing of an option, and we're going to dive into them very shortly. And to help compute this in a better manner for us to be able to understand how this pricing is going to be changing, well, there are some different formulas or, you know, Greeks. Sorry, there's different formulas, factors that we call Greeks that help to describe how an option is going to change in value. All right, so these are going to be the Greeks, and we're going to dive into them very shortly. So, like we can notice here, we have the pricing of an option. On the top-hand side, we have the call, and on the bottom, we have a put. What we can notice is that, so just for reference, the x-axis is the underlying price. So, as the underlying price is moving up towards the right, well, we have an increase in the value of the call. Right, so like we said, someone who buys a call has a bullish outlook, meaning that as the underlying price is going up, the value of a call is going to be going up. Similarly, a put has a bearish outlook, so as the underlying price goes towards the left-hand side, meaning towards a drop, well, the value of a put is going to be increasing. Right, but one thing to note, I kind of circled it very subtly in yellow, you're going to notice that it is not linear. Right, there is some form of curve, and that curve is extremely interesting and important in the world of options. Right, this is the fundamental of everything that is going to be coming up after in this presentation. So, it is not linear, and it has some convexity. So, these guys, Black, Scholes, and Merton, they made this famous formula. They won the Nobel Prize for it. So, let's just be clear here, this is not a calculus class. Okay, don't be scared. This is just for reference. All right, so this is the Black-Scholes and Merton. This is one of the most accepted options pricing models, and we're going to be using it to describe the different characteristics of an option pricing. So, looking at this formula, there are different parameters that come into play to define the pricing of an option. So, first of all, there are the parameters that define the option: the strike price, the contract type, and of course, the underlying, which is SPX here. So, the strike price is defined, and it is static. Right, you cannot change the strike price of a contract midway. Right, the contract type, a call is always going to be a call; it's not going to switch to a put. Right, so this is defined and static. So, now we have different other parameters that are somehow static during a trading session, which is the risk-free rate. So, it is defined and common for every single option contract. Right, the risk-free rate is common; however, it can change a bit, but generally it is static during a trading session. And of course, a dividend, it is static for the SPX as there is no dividend, and for instance, for a stock, for example, it is going to be static during a trading day unless the company announces a new dividend rate. However, there are three different parameters here that are extremely dynamic and have a very important factor in determining the pricing of an option, which is the underlying price. The underlying price can move a lot during a trading day. Also, the time to expiration, time always moves. Right, I think so, time always moves forward, and this is dynamic for every single contract. This is common for every single contract. So, the underlying price is impacting all the option contracts, the time to expiration too. These two elements are defined and dynamic, and the other one is the implied volatility. Every single option contract has a unique individual value of IV. Right, so this is not necessarily defined and set. Right, also, it is very dynamic. Okay, the IV of every single option contract can be changing during the trading session. Before we move on, there is a question here: Is there a link to PowerPoint so we can take notes on our devices? Let me check here on the platform if there's a way for me to share. Hold on. Yes, we are. Does everyone hear me properly? I feel like there's some people who say that the speaker is getting ready. I do, I do hear you properly, so you just can confirm that. Okay, everyone hears, but the silence, silence is not hearing us. Maybe try to refresh the page. Everyone seems to be hearing us properly here. You, could you try to just share the PowerPoint to everyone while we proceed? Yeah, sure. Let me do that. Great. Wait, let me send you the PowerPoint. Hold on. Okay, it works on the web, not on the app.

not using them in this video I share with you a webinar I sold for hundreds of dollars a couple months ago in which I go everything you need to know to understand the effects of options on the market and predict price movements

before they happen so you never get trapped again we'll cover all the fundamentals about options Greeks the role of market makers how they influence the market and how you can profit from it this is basically a ful length

options trading course for free this isn't going to be your basic trading video I'm going to be showing you exactly how to perfect your entries through options positional insights while taking less risk than ever before let's get into it so the title of this

course is going to be beneath options decoding positioning effects for Traders right I think we're all Traders here and we want to understand better the effect of positioning and how we can benefit from so let's begin this is going to be the broad outline

for today's presentation so we're going to go over the technicals uh of options you know just some basic fundamental definitions then we're going to go over market makers Delta hedging and how we can use this information to be able to play some

trades right applicable uses so technicals this section is going to be split in three different parts of course option fundamentals just going to go quickly over that uh then we're going to go onto the first order Greeks and then uh

positioning so to begin with option fundamentals what is an option I think all of you guys know what is an option uh but let's just go over it pretty quickly uh it is basically a financial contract that grants rights to owners

right there's always a buyer and the seller in the option contract uh and it grants the right to the person who buys the option to either buy or sell the underlying asset at a set price within a defined time frame which is an

expiration okay so there's two types of different uh there's two different types of options there's the calls and there's the puts the call it grants the owner the right but not the obligation to buy the underlying when you buy a call

usually it has a bullish outlook for the person who buys the call right on the other hand the put grants the owner the right but not the obligation to sell the underlying So when you buy a put generally this has some form of bearish

Outlook so uh there are different parameters uh with respect to an option that that that defines it right so of course there is the underlying to which it is tied so for instance we're going to be covering mostly SPX here so

SPX uh right so there's the underlying there's going to be the type whether it's a call or a put there's going to be a strike price all right and an expiration date and on the right hand side you can

see interactive brokers option chain um mobile version so on which you have different combinations of expirations strike prices and of course you have the cuse and the puts separated on each hand so one thing to note uh with

respect to options is that their pricing is not linear there is what we call convexity to it and not only that it is multifactorial all right there's a lot of different parameters that come into play that help Define the pricing of an

option and we're going to dive into them very shortly and to help compute this in a better manner for us to be able to understand how this pricing is going to be changing well there are some different formulas or you know Greeks

sorry there's different formulas factors that we call Greeks that help to describe how an option is going to change in value all right so these are going to be the Greeks and we're going to dive into them uh very

shortly so like we can notice here we have the pricing of an option on the top hand side we have uh the call and on the bottom we have a put what we can notice is that so just for reference the x-axis is

the underlying price so as the underlying price is moving up towards the right well we have an increase in uh the value of the car right so like we said someone who buys a car uh has a bullish Outlook meaning that as the

underlying price is going up the value of a call is going to be up going up similarly a put has a bearish Outlook so as the underlying price goes towards the left hand side meaning towards uh a up

well the value of a put is going to be increasing right but one thing to note I kind of circled it very subtly uh in yellow you're going to notice that it is not linear right there is some form of curve and that curve is

extremely interesting and important uh in the world of options right this is the fundamental of everything that is going to be coming up after in this presentation so it is not linear and it has some convexity so there's these guys black schles and

Muran they made this famous formula uh they won the noble priz for it so let's just be clear here this is not a Calculus class okay don't be scared don't be this is just for reference all right so uh this is the black schs and

ween this is one of the most accepted uh options pricing model and we're going to be using it to be describing the different uh characteristics of an option pricing so looking at this formula there are different parameters that uh come into play to be

uh defining the pricing of an option so first of all there are the parameters that Define the option the strike price the contract type uh and of course the underlying which is SPX here so the strike price is defined and it is static

right you cannot change the strike price of a contract Midway right the contract type A call is always going to be a call it's not going to switch to a put right so this is defined and static so uh now

we have different other parameters that are somehow static during a trading session which is the risk- free rate uh so it is defined and common for every single option contract right the risk free rate is common uh however it can

change a bit uh but generally it is static during a trading session and of course a dividend it is static for the SPX as there is no dividend and for instance uh for a stock for example it is going to be static

during a trading day unless the company announces a new divider rate however there's three different parameters here uh that are extremely Dynamic and have a very important factor in determining the pricing of an option which is the underlying price the

underlying price can move a lot during a trading day also the time to expiration times always moves right I I think so uh time always moves forward uh and this is dynamic for every single contract this is common for every single

contract so the underlying price is impacting all the option contracts the time to expiration too these two elements are defined and dynamic and the other one is the implied volatility every single option contract has a unique individual value of IV right so

this is not necessarily defined and set right also it is very Dynamic okay the IV of every single option contract can um can be changing uh during the training session before we move on uh there is a question here is there a link to

PowerPoint so we can make take notes on our devices uh let me check here on the platform if there's there's a way for me to share um hold on yes we are I does everyone hear me properly uh I

feel like there's some people who says that the speaker is getting ready I do I I do hear you properly so you just can confirm that okay everyone hears but the silence silence is not hearing us um maybe try to refresh uh

the page everyone seems to be hearing us properly here youf could you try to just share the PowerPoint to everyone while we proceed yeah sure uh let me do that great wait let let me send you the Powerpoint hold

on okay it works on the web not on the app that is strange I'm going to contact broadcast about this um all right uh we're going to proceed so we just went over the different factors that is going to be impacting

um the options pricing and the three in red are extremely Dynamic during a trading session so to understand options they have an intrinsic and an ex extrinsic value right so the intrinsic value is characterized by explicit markting conditions for

instance you can take a call for instance with a strike price of 100 if the underlying price is 110 well there is a $10 value tied to this contract right because this call option grants you the right to buy the

underlying at 100 and if the current underlying price is 110 you could directly make a $10 profit so there is a $10 intrinsic value however different parameters work together to give some form of extrinsic value to an option for

instance if the underlying is extremely volatile uh well having this option can act as a form of insurance right so IV is going to play an important role in determining the extrinsic value of an option contract time to expiration too right also the

risk-free rate so different parameters uh will be playing together in pricing the option and giving it some form of extr Si value uh to uh the option contract so over IV right each contract like we said has independent value of IV so sometimes

people are going to be saying right the IV is going up the IV is going down so Brokers will be having some form of formula to be representing the overall implied volatility of the entire options chain however this is somehow of a kind

of mathematical gymnastic because in the essence every single option contract has a unique implied volatility value right and this is referred as the fixed strike volatility and it it is in a way measuring the expensiveness of an option

contract so for instance let's just take an example right if a customer aggressively buyers uh you know a a contract and drive the price up so let's not forget all the parameters characterizing the options price are defined right so the

underlying price the current time uh whether it's a call or put the only one that is not set right is the IV so in that case if the options pricing is becoming more elevated well in that case the IV in the black solls model model

right uh the IV has to rise to explain this increase in the options price right so on the other hand if every customers aggressively sell a contract and drive the price down well all the parameters characterizing the options

price are defined uh but the IV like we just said and in that in that case the IV the IV will be dropping right um another example is is for example uh CPI is coming right there is more

uncertainty about the underlying Direction and like we said like we discussed options they act as a form of insurance right so the perceived value of these options is going to be increased so uh in that case not only

people are going to be buying more options uh but also the perceived value of uh the option is going to be increased so in that case the IV is going to be increasing and this is why generally we have more expensive options

ahead of major uh economical events uh or earnings for stocks right we're going to have more expensive options and a rise in implied volatility so we can understand that IV is not just a measure of the is not

necessarily A measure of the underlying volatility it is the implied volatility from the options price right this is why we call it the implied volatility the the volatility of the underlying is just how much it moved right uh so it's

a measure in some way of the supply and demand of options it factors in the underlying volatility it's overall the uh the expensiveness um the expensiveness of an option so as a recap options are contracts they're Financial contracts that Grant

the right uh to buyers to either buy or sell the underlying whether it's a color put they're defined by parameters so the underlying asset SPX Apple whatever stock uh the type is it a call or put the strike price and of course the

expiration the pricing of options is not linear and it is multifactorial so the underlying price time to expiration you know and IV are Dynamic very Dynamic during a trading day um it has intrinsic or extrinsic value and it can measure and the IV

measures the expensiveness the relative expensiveness uh of an option we're going to be diving in uh the Greeks the order Greeks so for instance Delta Theta and Vega right so Delta what is Delta right Delta measures uh the price

sensitivity of an option with respect to a change in the underlying so cause are going to have a Delta between 0o and one p are going to have a Delta between minus one and zero okay okay so for

instance a call option with a Delta of 0.5 means that the options price will be increasing by 50 Cents for every $1 increase of the underlying asset okay it's just a representation of how is the options price going to change with

respect to change in the underlying okay so is simply the derivative so the Delta is basically the slope of um the options price right so how is the price of the option changing uh the slope is going to be uh the Delta it will be

representing how uh the Delta is changing with respect to the change in underlying price so the Delta is just the slope of this graph we can understand that uh Delta cannot be greater than one for a call and it cannot be inferior to

minus one for a put the Val Val of uh an option cannot fluctuate more than the actual underlying it wouldn't make any sense right imagine having a call on Apple Apple let's say costs 200 bucks right if Apple moves to 202 you cannot

make $3 right if the underlying moves by $2 the maximum amount you can make with your call option will be $2 it just doesn't make any sense to make more than the actual uh under wait some people are are having trouble

with the PDF for for for those who can't access it uh please write down your emails I'll be sending uh the the PDF to you via via email so if you guys have any question uh write them down in the Q&A section and

we will have a little moment uh after each SE each section where we will be answering the questions so just put them in the Q&A section so that we can keep track of the questions as the chat can

move pretty quickly all right yeah I think pretty much everyone is not working okay uh well I'll continue with the presentation and youf is going to be sending you the the email shortly so just to make sure to put your

questions in the Q&A rather than the the chat because the chat we might lose your question okay so like we said the Delta cannot the value of an option cannot move more than the actual underline okay and I think it makes

sense so like we said Delta is the um it is the derivative it is the slope right of the options price so for a call like we said the value of a call always increases as the underlying moves

forward so it is logical that is it is contained between zero and one it is always positive whereas a put gains value as the underlying price is dropping so it is logical that the value of the Delta of a put is negative contained

between minus one and zero we also noticed something very interesting is that the greater we approach the expiration time the greater that change in Delta becomes significant drastical right so here HTE stands for ours still expiration um and at expiration

basically we just get this binary where the Delta moves from zero and one for a call and zero to minus one really quickly for a put right so another way to see it but this is for some some of our friends that have a

more of a statistical approach it could be seen as the probability of lending in the money at expiration so uh if we just take example here at expiration if you're uh if the option is in the money right basically the probability of it

Landing in the money is 100% is one the further we are away from the exploration well the more chance that the actual underlying moves and the option ends up not being in the money so that's just another way to visualize it

but it doesn't necessarily change our approach of understanding the Delta this is just another way to see it Thea so what is Theta Theta is simply measuring the rate of decline in the options value over time so it indicates

the daily price decrease of the option as uh you know the expiration approaches for example an option with a Theta of minus 0.5 the value of the option is going to be decreasing by 50 Cents every day okay so we can see here uh that all

options they can all right so in the money call on the top left um the value is going to be decreasing over time add the money options too right out of the money calls uh so every option will be having some form of Decay

you see that all the slopes are moving towards the downside all the slopes are negative right so this is Theta Theta measures the decay of an option over time and we're going to notice that the effect of theta is

Amplified uh like we said at the M right so Theta is highest for add the money option and time Decay accelerates as we near towards the expiration so every option long options have a negative Theta meaning that their

value is decreasing over time short options well it's the opposite right so they have somehow a positive Delta if ever you're on the opposite hand and of course the underlying has no Decay right the underlying is the underlying there's

no decay so like we said every contract Decay and they lose their extramic value as we approach the exploration Vega what is Vega basically Vega simply measures the sensitivity of the options price with respect to the IV change

right so in reflex so the value of Vega is simply the change in the options price for every 1% change in IV so uh arise in the respective fixed strike IV of this contract right for instance uh will be uh having an increase in the

options price right so we're not speaking of the vix vix is a different formula that we're not going to get into it in details but vix is not necessarily your a reflection of your specific options IV right it is a very complex

formula that encompasses multiple different options in espx so Vega has a positive relationship with an options price so as the IV increases the cost of an option increases right the price of the option increases like we discussed previously

right it is like the missing piece of uh an options pricing every other element is fixed uh and set as a market in the market conditions as the name says it it is the implied volatility from the options

price so generally the IV is going to be rising when there's a potential High volatility event or some form of volatility will be expected in the on as these options these contracts are going to be more valuable when you're long

options you're long IV right because as IV increases your options are going to gain in value and the opposite if IV drops your options positions value might be dropping if your long options so a visualization so on the

left hand side you have the options price and then on the x-axis uh you have uh IV right so we see that for every single type of option whether it's an in the money call at the money call out of the money call same

thing for puts as the IV increasing the value of the option is going to be increasing as well so just a little recap Delta represents how the options value changes with respect to the underlying price it is positive for you know a long call and

negative for a long put Theta is a representation of how the options value changes with the passage of time so like we said options Decay so all long options will lose value over time Theta is going to be negative and it's

going to be positive for short options since you have the opposite side Vega represents how the options value will change uh with respect to a change in implied volatility all options behave positively with a rise in IV uh and it will be of course a

negative relationships when your short options when IV increases your options portfolio if you're long will be increasing and decreasing if IV drops so there's some this is something pretty important here right um positioning is not open interest right

we're going to go over the differences between the positioning and open interest so open interest what is we seem to be using it a lot in our trading and uh you know to make our I used to use it before options that a lot to uh

place my trades basically open interest is simply the number of open contracts for an option so we need to understand something is that it is a zero sum game for every contract there is a buyer and there is a seller right just going to

make up some random positions so if one person writes the option meaning selling the option the other one has to buy it can be between any Market participant so two customers can be selling and buying contracts between each other

can be between a market maker and a customer it can be anyone right what we need to understand is that it is a zero sum game and open interest is updated once a day before the market open so let's take this very simple

example imagine a market where there's only two person person one and person two right person one buys 10 contracts from person two well person one is longer 10 contracts person is short 10 contracts the open interest is 10 simple so

far so open interest is not a good representation of Market makers's position of any position actually let's dive into this other example Le so now we have a market composed of three different uh Market participants we have customer One customer two and we have

market makers here as dealers right so let's take this First Column right day one this is just an example one day so customer one is going to be short five contracts and he sold his contract to customer 2

who is long now five contracts the market maker is going to have no position here the total open interest is going to be five as five contracts are being distributed here between two different Market participants so here the market maker

has no option position and the open interest is five on day two for example customer one is going to have five contracts customer two is going to have zero contracts and this time the market maker sold the five option contracts to

customer one so Market maker is short five contracts customer one is long five contracts yet again the open interest is still five so Market maker on the first example he was he had no option position the open interest was five on the second

day the same five contracts were distributed across different uh Market participants so now the market maker is short five contracts and the open interest is five on day three now something completely different happened where customer two sold five

contracts to the market Maker Now the market maker is long five contracts and the open interest is still the same so we can see that there's no correlation between a specific Market participant's position and the open interest the open

interest is only representing the number of open contracts right it doesn't tell you who owns this contract and this is extremely important so the market Maker's position on the other hand is going to be representing somehow an imbalance in the

options trading right like we said uh market makers they take the opposite at hand of customers they're the one being on the bid and the ask right if customers buy a lot right of contracts well market makers is going to be short right

they're going to be taking the opposite hand if the customer is selling a lot of contracts therefore market makers will be long uh it's a zero sum game somehow so like we said this is the ideal scenario where there's a very

balanc trading where customers you know Trader one and trader TWO are equally buying and selling their option contract and Market maker is just playing as a form of middleman taking the you know buying at the bid selling at the ask and just Distributing the

contracts between different uh customers this is the ideal environment for market makers but the reality is that uh there is often some imbalances right uh on the SPX alone there's above 20,000 available contracts so it is very probable that

there is some more aggressive buying or selling for some specific contracts so here is a um a representation of a buy imbalance right where customers Traders are buying more aggressively contracts and this is making the market makers who provide the

liquidity being short these contracts right so there is an imbalance towards the customers the opposite can be true where some um some Traders might be selling some contracts very aggressively and this is you know causing the market makers to become long some options right

so it all depends of the overall imbalance in trading um the market maker could be ending with a residual position so just to recap open interests represents the open number of contracts it is it's like a refle like the name says it just like

implied volatility meaning that it is a volatility implied in the options price the open interest is the open number of contract and it represents just the interests the interests people have in a specific contract it does not provide any

positional Insight so market makers feel the imbalance call caused by the customer's trading right so market makers we're going to go over pretty quickly uh about their roles and also what is at stake so uh they're all so right when you log in on your

brokerage account right doesn't seem super easy to you trade right you just click on the button and then a random outof the- money option gets filled to you instantly and that a fairly reason the price right so behind the

scenes uh there's a market maker selling you or buying from you a specific contract so the market makers they provide um they provide liquidity for trades they are typically on the bid and the ask and without market makers first

of all you wouldn't be able to place these trades instantly and also uh they help narrow down the spreads right because there's multiple market makers they all compete against each other so this is helping us get better field

prices better prices for our trades so they are naring down the tra the spreads and they provide us liquidity right people see market makers as mystical entities like they want to stock catch your stock stop loss but in reality

they're just trying to survive right so uh like we said without market makers uh trading would be a complete mess and it's just makes sense that they try to make money right they here to make money and the way they do it is by profiting

from spreads so they buy at the bid they buy low and they sell high at the ask so scaled on thousands of just on the SPX alone right so we said there's about 22,000 available contracts at all times

on the SPX and for each contract there is thousands of transactions every day right so scaling this amount of transactions if you're able to make one five $10 on every trade you can make huge profits right and this is how they

operate this is a visual representation once again on the interactive brokers app um so we can see on in pink or red uh there is the ask the best ask is for instance 23.2 uh and the best bid is 22.8 right

so the spread is in between so it's between 22.9 and 22 uh 23.10 this is the spread this is uh where market makers make profit right they're able to sell at 23.2 and buy at 22.8 so buying and selling with these

price differences they're able to generate profit so the wider the spread the greater the potential profit but like we discussed it's a competitive industry right there's multiple market makers and each compete against each other and therefore this is helping to narrow down the

spreads and it creates great trading environments for us traders who want to profit and have better feels so like we discussed right there can be imbalances so not all contracts are extremely liquid at all times meaning that there's not always a buyer and a

seller present for every single option contract like we discussed um for instance market makers uh sorry like we discussed on the SPX complex there are like 22,000 available contracts just it's not possible that every single contract has liquidity buyers and sellers at the same

time so if there's a large customer order coming in for a specific contract while the market makers will be ending up stuck with the opposite positions as they're not going to find any other customer to uh you know sell or buy back

their options to um so they're acting as the middleman but if ever there's no other person to transfer their position to they're just going to stay stuck with a pretty large uh options position so this is the imbalance we just covered

and options these options positions are inherently risky right so if every their long options well like we discussed right with Theta long options Decay they lose value over time short options exposes the market participant to like unlimited risk right

we're going to dive into this later uh so these options like we said uh their pricing is not linear it moves all the time and it is extremely risky to be holding huge options position when all you wanted was to profit from the

spreads right you end up stuck with a with a time taking bomb you don't want that so a recap market makers they provide liquidity for US market participants we should like them because they make us make our trading a lot

easier uh they profit from the spreads they sell at the ask they buy at the bid and overall options are not all extremely liquid and therefore market makers end with large option positions and red flag here okay these options are

extremely volatile and their value can fluctuate a lot so this is risky business for the market makers speaking of risk if there's one thing that they're worried about like we said it's not bagging us with our little trades then

20 100 contracts right they have to manage huge risks speaking hundreds of thousands of contracts at all time right so um putting things in perspective an option contract is just like a drop in the ocean not only the

option Market is an ocean but it's it's pretty hectic that's of waves right uh so yeah putting things in perspective we saw the dynamic of Greeks right for a single option contract but now we can understand that the option

Market the market makers portfolio can be composed of hundreds of thousands if not millions of option contracts uh just on the SPX alone right uh and they all move at all time so this was as of March 12th right

there's there was 21, 896 contracts and 59 different expirations uh we should have a very similar value as of uh today but just to put things in perspective this is this is the listed contracts this is not the positions

right so for each contract there could be thousands of um options in the market makers book so we're speaking huge huge huge numbers of option contract in the market makers options portfolio and like we said the characteristics of

uh these contracts they change continuously at the same time and in an independent manner so we're speaking their value their actual price value and also their Greeks and we're going to dive into it uh pretty shortly like we said options are

volatile right and let's not forget right the factors that have the most impact are here in Red so during the day the strike price of an option is is not going to change the put is going to stay put call

is going to stay call the dividend is not there's no dividend for the SPX okay the underlying price though can move a lot time always moves forward and the IV can change for every single option contract like we said so this is the

options pricing so time there's Theta time is moving forward the options uh value is going to be changing the underlying price this is reflected with Delta right uh Delta can either go up or down uh sorry like the underlying price

can go up or down right and the the changing value for the option is going to be reflected with Delta and once again Vega it can get tricky like we said every single option has its own IV it is the fixed strike IV so it gets a

bit more tricky with respect to a change in I right so like we said their first objective is to not hman so like we said we have three main dangers uh we have Theta Delta and Vega right time underlying price and

Vega TAA it's hard to fight right unless you were able to you have a time machine where you can just press pause um it is it is hard in some way to hedge so you can either capitalize from

direction if you're if the market makers are long options well they can capitalize from the you know the direction uh they could sell decaying assets right right how they hedge it there's multiple different ways but don't forget here we're trying to find

an edge in our Market we're trying to understand what can the market makers do to hedge your portfolio and if we're able to obtain this form of edge knowing what they're going to do before they they actually do it so understanding

Theta is tougher right uh so they could be doing many different things to be able to hedge your portfolio um so moving on to Delta right neutralizing the direction uh the directional risk of their option portfolio so they

could they could do what we call Delta heding right and that is simply trading buying or selling the underlying asset Delta represents the change in the op options portfolio value as the underlying price moves up or down right and to counterbalance this

they could be buying or selling the underlying asset as the underlying asset also has a directional risk to it so buying the underlying asset will have introduced a positive Delta to their portfolio and selling the underlying asset will introduce a negative Delta to

their portfolio so they could balance off their Delta exposure by buying or selling the underlying asset and of course there's Vega hedging uh there's many different ways or instruments that market makers can do yet again it could be buying or selling

options different derivative products uh yet again it is hard to grasp an edge uh when there are so many different derivative products uh available uh on the market and also let's not forget we want to look at the global overall

pictures right if every market makers buy or sell options well most likely another Market maker is going to be on the other side of the trade it's a zero7 game we want to understand the overall market makers exposure as they're all going to

be trading in the same direction and we could be potentially predicting um their hedging activity right so like we said we're interested in the overall global market makers position and there's no particular interest if they just cancel each other out

and like we said for uh the Delta they could proceed with what we call the Delta hedging and this would consist in buying or selling the underlying asset and trading the underlying asset might influence the direction of the

underlying asset if ever there is a huge buying pressure uh from the market makers and well the underlying price might be going up yet again if ever there is a huge selling pressure pressure on uh the market makers and the under price could

be going down or the ascent of the underlying price could be slowed down if we know that market makers have to sell so um to recap this little section so market makers they hold huge amount of options and these

options they change in value uh mainly because of time changing the underlying price which uncovers uh Delta hedging and uh the change in I right Delta hedging um implies trading the underlying asset and when done in very large volumes well this might be

moving the underline so it's been about one hour we've been talking do you guys want to continue or do you guys want to we can make a little a break and answer a couple questions yeah I think there are

questions that are piling up so it's a good uh I think it's a good uh it's a good time to answer them will there be a playback on this realize I can't intend anymore yes so uh this is

recorded uh so you guys will be able to log in this crowdcast platform and listen to the recording of this session what is the key difference between Theta and charm are they the same idea but different names a great question we're

going to dive into charm pretty shortly so Theta represents the decay of the options price over time whereas charm is reflecting the change in Delta over time so Theta is a first order Greek meaning it is a derivative

of the options Price Right charm is a second order derivative meaning it is a derivative of a derivative right so it represents the change in Delta as the time moves forward so this is a key difference so charm and Theta are not

the same thing at all so both however imply a change in time right but they do not measure the same thing at all another question here by uh dark s so IV is directional so IV is directional I

thought it was about how much the underlying is going to move either up or down so if price goes down uh a lot it would also increase IV so the thing is that there is a correlation between uh markets going

down and the increase in IV but it is not a causation right um IV is not necessarily directional like we explained uh simply an event having an important event could be having an impact on the overall implied volatility so like I said IV is not

directional it is not necessarily correlated to uh the underlying direction we have very often some days where the implied volatility is going up as well as the underlying asset is going up vix up spot up days that's just a way

to to say it so there is no direct causation between the underlying Direction and The IV there is a correlation however uh that could be maybe explained by uh the customer's response to a market moving down more options buying is generally think of it

if the market started going down you would be purchasing some protection right for your overall position whereas if the market is just going up in stable manner uh there is no need for these such of for such insurances so uh like I said

it it is not necessarily directional it is just a measure of the put the implied volatility implied from the options price so uh yeah this was answered what is the key difference between Teta and charm this we answered uh yeah Julie Wade said like

limit orders they can vanish yeah I think this was I was speaking of something specific but I'm not sure what we were referring to but yeah some limit liit orders can be placed and they could vanish meaning that I could place a limit order at a

specific price and just remove that order and indeed uh it would it would vanish uh so how do I know how do we know if Market maker are on the other side of a customer is on or a customer is on the other side so

uh there's it yeah so let me start answering so there's uh different ways we're going to dive into this a bit later uh but essentially uh exchanges know everything so we're all registered uh along the SEC and whenever someone

buys or sells an option um exchangers know exactly who buys and sell you could you could see if a transactions is on the bid or the ask and try to guess uh is it a customer or a market maker

that is long or short uh thus one way of estimating it another way to do it is the bad way I mean it can work sometimes but it is the the least precise is to be assuming that puts are bought and calls

or sold by customers and this is the predominant assumption that is present um using open interest so we don't like this approach but it could be used uh and is used by different other providers so this is answering mean

ski can you show how to apply this to es Futures Trading such as entry points going long short thanks yes we're going to dive into this later ER you mentioned black shs and then you mentioned the uh the one broker

who does not use black shs for their Delta calculations yeah I mean yeah we just use a broker for representing the the spreads uh so yeah they could there's different models over there uh but we'll be using the black

shs model for uh this presentation uh so there's one two three four more questions so the big question is which option contract to buy strike then expiry how can we make this simple yeah we're going to dive into actionable insights later in the

presentation uh we're going to go over how we produce our data sets and how we can use them to uh Place traits kind of an advanced question but why are why are nonstandard call option nonstandard call options not as

liquid as a non-standard put option what do you mean by non-standard this is answering Jackie Lewis stomp hun can be a way to buy sell the underlying asset to reduce exposure uh yeah of course so there's a correlation between uh you know es uh

limit orders and stop orders and the overall exposure so don't forget market makers now we're covering how they will be h their options portfolio but there are other ways that they um hedge their portfolio meaning that uh they also

provide liquidity for futures and you know the underlying asset itself uh but in this presentation we'll be covering how they hedge their options portfolio which is huge and hedging can be pretty significant but yeah stop hunt can be a

way to hedge um their actual underlying uh asset that Ely for vix and meme stocks IV tends to increase as the underlying increases that's right because like we discussed IV is not necessarily correlated to uh the direction rather it is correlated

to an overwheling balance in buying or selling options so when people are buying options you know like you can see here I hands uh if every we just start buying calls the overall value of IV of these calls

is going to increase as customers are rushing to buy these calls right so uh yeah like we said uh meme stocks are a very good example for this yeah so we're going to dive into the gamma exposure later on uh this is

for Jeremy sham Chan sorry curious about the deck and the reaction what's the advantage of selling 60 Delta put call option in the bullish Market it seems like selling 60 Delta yeah so we're going to dive into actionable insights later on uh in this

session this is just Theory so I'm going to keep these questions active uh for later all right I'm just going to take a water or coffee are you guys ready to continue all right we're going to proceed with the

presentation great so uh we're going to go over Delta hedging um so like we discussed market makers they need to hedge their uh directional exposure all right and they proceed with what we call Delta hedging all right we're going to go over what it

is how they could do it and of course we're going to dive into the second order Greeks so what is it it is used it is a strategy like we discussed uh used to eliminate directional risk of uh their options

portfolio SO trading the underlying asset is the most popular way to do it some of you guys are going to say they use zero DT options but like we discussed right we want to understand the overall imbalance created so if

every market makers Buy options to hge your options portfolio most likely on the other hand will be another Market maker who will potentially be hedging uh via the use of Futures so um the goal is to understand the overall imbalance right and Delta

hedging essentially comes down to buying or selling something that has a Delta exposure generally uh the underlying asset and when you trade this underlying asset in a very intensive manner uh with a substantial imbalance it can influence the underlying price

movements so the optimal instrument instrument for the SPX would be to be trading es Futures why well they're extremely liquid the payout is linear meaning that uh they don't have like their Delta stays constant So when you buy a future if the underlying

goes up by one point your profit uh or your profit will go up by one point so it's not there's no convexity to it like there is in options and also they do not Decay right of course we're speaking of

uh non-expired future contracts right this can be rolled very easily so the goal is to have a non- decaying Delta um as an instrument uh used for hedging so it wouldn't be very wise to hedge convexity with another another instrument that also has

more convexity to it uh it would just create a mess in one's portfolio so generally the optimal instrument is using the underlying itself to hedge the Delta exposure how let's just have an example I love examples uh so let's use this following

one so imagine a market where uh there's only you and a market maker you buy 10 calls and I'm the market maker I sell I sell these 10 calls to you right so let's take for example this SPX 200 call the Delta is

0.3 so your position you have 10 calls your Delta is three right so it's 0.3 times your position so you have a Delta of three the market Maker's position my position B basically I'm short 10 calls so my Delta is minus three right

so I have the opposite hand of your position and to neutralize this directional risk right now this is a new trade that is taking place what would I need to do to make sure that my Delta is zero is to buy Six es e mini

contracts why this is just a detail so one SPX options Delta represent a $100 change for underlying Point change so uh there's a 100 multiplicator to options I think you guys know about it whereas es mini contracts they would

change for $50 per underlying uh Point change right so there's a two to1 ratio so if my Delta exposure is now minus three I would need to buy Six e mini contracts to neutralize it and bring back my Delta

to zero so minus 3 * 2 will be minus six so I would have to long six IMI contracts so this is just a visualization so uh if every the options book is increasing the Delta exposure what I

would need to hedge in the opposite way to bring it back to equilibrium to zero right so uh this is just a little visualization to understand the Delta hedging better so like we can understand right as soon as the trade takes place there

is an immediate hedge right like we noticed as soon as I introduced a new position in my portfolio of uh a new Delta of minus three I had to systematically and immediately uh hedge right so I had to

buy Six es IM mini contracts as soon as I had my position my new Contra my menu options position so generally even before you see it on the tape on your brokerage account well uh this is already hedged all

right so however so there's no this really forward looking inside if you're trying to guess the if you're like looking at the tape and trying to guess what will be the hedging response of market makers from a large

trade well I'm sorry to tell you but the hedging already occurred right uh however you know this flow can hint us on you know the overall customer sentiment if we see very huge trades being placed you know calls being bought

by customers large transactions on the ask you know you can have some good Insight on the overall um Market sentiment right the customer sentiment however it does not provide you a Delta hedging Edge in some way so yes

however like we said right options they change over time over different parameters and now time has passed uh price and IV have changed now the Delta is 0.8 so it was 0.3 before now it's 0.8 right so we understand that the

Delta exposure has changed so what is going on now my Delta is of my options portfolio right is minus8 right so it was minus three now it's minus8 so from the previous state right uh there is a minus5 Delta

that has been introduced to my portfolio so I'm a market maker and I want to rebalance it once again to zero so what I need to do as a market maker to hedge my portfolio is to be buying 10 more es

IMI contracts to bring back my Delta exposure to zero so we understand that there's it's a two-step process in other way right there's an initial hedging that occurs that is systematic and then there is a continuous battle uh going on to

maintain this Delta neutrality uh in the overall options portfolio so like I said the initial hedge is systematic upon opening a new position and then the continuous hedging it varies from firm to firm right there's different market makers so what we know

though is that market makers do hedge their option portfolio very frequently throughout the trading session some of them is uh do it with a specific time interval others would do it with certain risk boundaries uh for example some

firms would do it every second for example right but what we do know is that the hedging occurs uh throughout the day and is pretty systematic and automated so once again this is not a Calculus class I don't want to be

scaring any of anyone of you guys uh but yeah Delta changes this is all you need to understand from this slide uh don't bother with these complex mats or computers are going to take care of it for you guys but what we need to

understand is that Delta changes right so these are the factor uh impacting the Delta exposure similar right so they're basically the same parameters that affect the options price so there's of course the strike price uh the contract type whether it's a call or put your

risk-free rate which is pretty static the dividend there's no dividend for the SPX but if ever you have a stock the dividend might be impacting the Delta exposure all these four parameters are generally static during a trading day uh

yet there's three parameters that are not very static so there's the underlying price that changes all the time is it is defined for every single option contract meaning that the underlying price is the same for all options however it is very Dynamic right

SPX you guys know moves a lot time to expiration time always moves forward so it is defined for every single option contract as far as I know uh the time is the same for everyone moves forward and it is very Dynamic meaning that the time

always moves forward implied VA right it is not so defined uh and it is unique for every single option contract and uh it is dynamic for every single option contract on the option chain so like we said Delta has a major

sensitivity to time this will be reflected by charm right time only moves forward the underlying price so this is going to be reflected by gamma under price can either go up or down right and it's easily this can be

easily forecasted if it moves up we know it moves up right and the implied volatility which is going to be represented by Vana and this gets more tricky as every single option has its own value of IV all

right so we discussed previously the first order Greeks so they look at how premium moves how the value of an option moves so there's Delta that shows us how the pricing of an option moves as the underlying price

moves there's Theta that shows us how the options price changes as time moves on and there's Vega that show shows us how the options price changes as the IV changes now the second order Greek we're going to dive into the second second order

Greeks of Delta it is a derivative of a derivative and making the derivative of Delta is going to help us understand how is the Delta going to change does that make sense so far you can just put a thumbs up or yes in the

chat great amazing so this is a little schematic so we have the options price it's like Inception we have the options price on which we make derivative so we get our first order Greeks Delta Theta Vega we have others but they're not as

interesting uh so uh these are the first order Greeks and then we make a second order derivative once again on Delta so we make another derivative of Delta so we have gamma charm and Vana right and these are the main

um factors that we're going to dive into so recap so far right market makers they profit from spreads they sell at the ask they buy at the bid they have large residual option positions and these positions are risky they need to

mitigate the risk notably the directional risk and for that what they do is that they trade the underlying by doing Delta hedge they buy and sell the under ey so if we can know how their Delta is going to be

changing we could forecast potential underlying price movements or at least price Behavior so now the fun part second order Greeks right so there's gamma charm and Vana that we're going to dive into remember this picture this is a

representation of the Delta of an option uh with respect to the underlying price right so what can we notice here so like we [Music] said gamma represents um the change in Delta with respect to a change in underlying price

so gamma is just the derivative it's just the slope of this graph basically right to go show you GMA measures the change in Delta with a change in underlying price right so it is simply a derivative of Delta it measures the

slope of Delta with the underlying price so one thing that we can notice is that it is positive you can see that the slope is positive for a call and the slope is also positive for a put right

gamma is always positive for a long option so for instance a put goes from more negative to less negative as a price goes up the Delta of a put goes from more negative to less negative as the price goes up the slope is still

positive so gamma is still going to be positive Delta for a call is going to go from almost zero to more positive towards one as the underlying price goes up so it goes the slope is still going to be positive

right so regardless of a put or a call we're going to have a positive gamma right and what we can notice is that the slope increases a lot as we approach the expiration so you can see here we had

the same color scheme so one hour till expiration the slope is pretty Ste steep 5 hours it is not as steep at expiration things get very wild right it's almost binary it's Delta goes from zero to zero to one real quick

right um and this can be seen on this chart right okay notice that gamma is becoming more and more elevated near the strike price and as we approach the spiration time so like we said it is positive for

long push and calls it is negative only for short positions right if you're short an option a call or a put uh your gamma is going to be negative and also it will be peing at the strike price and as we get towards the

expiration time uh it will be increasing exponentially and we'll be narrowing down near the strike as we approach uh the expiration right and it makes us think about introducing the daily Zer DT Explorations and how this can impact the market so just keep that

in the back of your mind so positive let's just take an example in a positive gamma environment so like we said in a positive gamma an increase in price will be resulting in an increase in Delta right a market maker in that

situation if he has an option with a positive gamma if the price increases his Delta is going to be increasing as a response his hedging requirement to bring back the Delta exposure to zero would be to sell all right similarly if the price

goes down the Delta of the market maker is going to be going down and as a hedging response he will be buying so we can notice that in a positive gamma environment there is a counter Trend hedging flow from the market makers's

end right they will be buying and selling against the price movements short options get things a little more spicy right uh it is basically the same thing but you just take the graph and you flip it upside down right so now you're short

the option you're short gamma same Dynamics apply so as we approach the expiration time uh the gamma becomes more and more negative uh and more concentrated near the strike price so in a negative gamma things are more spicy so as the let's say the

market maker is short the option now right Market maker is short gamma negative gamma as the price increases the Delta exposure of the market maker is going to be decreasing now as the price is going up the market maker has to buy the

underlying to hedge see that buys with the direction of the underline on the opposite hand if the price goes down the market Maker's Delta exposure is going up and now the response of the market maker will be to sell on the way down so

you understand that in a negative gamma environment market makers they kind of remove liquidity from the market trading in the same direction of the market right positive gamma is more liquid environment meaning that the market makers will be selling and buying

against their price movement and the negative gamma is a complete different scenario market makers actually trade with the underlying Direction and it can just add oil to a fire so we get more volatile underlying price changes in negative gamma

environment once again this is just a visual representation when the options Delta is increasing market makers have to introduce a hedge on the opposite hand therefore uh bringing back the overall Delta exposure to zero so this was gamma now going to charm so it will

be measuring the change in Delta with the passage of time right so this is the difference between Theta and charm right Theta like we said is measuring the change in the options price as times moves forward charm is going to be measuring the

change in Delta as time moves forward so a nice way to visualize it is you start at the five hours till expiration and as you move forward your contract is going to become a one hour expiration so the way to see it I put

some little arrows here on the figure so uh you can see that the five let's just take the example of an outof the money call so I'm on upper left corner of the figure so you have a five

hour to expiration call as time progresses you're going to notice that your Delta the Delta of your call is going to be decreasing so it's going to go to positive to less positive right for an in the money

call your Delta like now I'm in the upper right corner so your five hour till expiration call the Delta is going to go from positive to more positive so on the left hand side we had a decrease in the Delta exposure on the

right hand side we had an increase in the Delta exposure all right similarity for a put we're going to move to the lower section now so on the left hand side and in the money put right you're going to go from

next negative to more negative so you have a decrease in your overall Delta exposure and for an outof the money put it will become more negative to less negative so we still going to have an increase in your

overall Delta exposure and this can be represented by this well this graph right we know we notice very similarly to gamma that charm has uh charm has no correlation with the actual option type it is going to be

negative for long options below the strike price and it is going to be positive on um above the strike price for long options and as we approach the um the expiration time we're going to notice the effect is going to be more

concentrated more narrowed down near the strike price at the money at the strike price charm's effect is neutral all right so this can be seen here where charm is zero on the actual strike price we have some negative charm below the strike

price and some positive charm above the strike price and this is a representation of how the Delta of the actual option contract is changing over time so in summary in for charm right it is not dependent on the options type

like we said positive above the strike for long long options and negative below the strike charm is equal zero at the strike price and just like gamma the effect is increasing exponentially and narrows down right as we approach

towards the expiration type and now once again have it in the back of your mind we have daily zero DTE options expirations now on SPX so this effect is going to be very important right so once again if you're short the option

you're just going to flip uh the chart upside down and um yeah below the strike price we're going to have a positive charm above is going to be negative so in the positive charm we like to call it

suppressive right because for market makers uh this means that the Delta exposure of their options portfolio will be increasing as time passes by so the hedging response will be to be selling the underline negative charm on the other

hand um is supportive as the Delta of the market makers will be decreasing as time passes by and the actual response of market makers will be to be buying As Time Marches On so it's supportive so think about it is that ch

and Gamma now have increased sensitivity as we approach towards expiration and the increased uh popularity of short-dated options notably zero DTE contracts one DTE contracts they exert a huge portion of the overall effect right so having daily options expiration is

GNA is going to have a huge impact on the market makers hedging van it measures the change in Delta as IV is changing so uh let's just take this example so this is a call on the left hand side there is calls on the right

hand side we have puts right this is the same option contract right you have a 7 DTE option contract on the left hand side we have 7 DTE call right in um in dark blue we have a call

where the IV is equal to 20% in light blue we have an IV with 10% what we can notice is that as the IV increases whether it's a call or a put we can notice that above the strike

price we have decrease in uh the Delta exposure right just like kind of similarly right um it's a bit similar to charm right so above the strike price we can notice that the 10% IV Delta is going to be decreased when we

move towards the 20% IV and for below the strike price we're going to notice that as the IV is increasing we get somehow an increase in Delta so this is what we get so looking at the Vana versus the

underlying okay we notice that below the strike price we have a uh positive Vana and above the strike price we have a um negative Vana this is for long options don't forget short options we always flip this upside down

right and what we can notice here I changed uh The Legend So now the light blue is one day till expiration and dark blue is seven days till expiration you notice that the magnitude whether it is one day till

expiration or seven days till expiration is significant whether we are near the expiration or not so what we can understand from Vana is that it has an effect and not only it has an effect but all options all expiration will exert a

significant impact a Vana impact compared to gamma and charm where the short dated options will have the more significant impact Vana will have will be driven by the entire options train right so it is independent once again to

the options type it is going to be positive below the strike and negative above the strike van just like charm is about zero at the money and all the expirations uh will weigh an important role and impact on the

overall so we have some thoughts in the back of our mind so zero DTE right like we discussed um it has been available to trading since spring 2022 uh necessarily the zero DTE trading but just having daily expirations right

because we have huge trades taking place that are one DTE for instance and these trades are often held till expiration right so just the fact of having daily expirations is going to have a huge impact on the market makers hedging

their impact is not only present but it it is growing in magnitude as they're being more and more traded and Gamma and charm are going to be as as important as they've ever been all right so like we said it will

drastically implify the effect of gamma inter so we're going to move to a new section um so we're going to dive into our approach all right and then how to be able to forecast the market makers flows so uh youf is going going to take

the lead here uh are you able to click and change the sides I think you're muted what up yeah no not on my side no oh hold on um but you're you're also a host so that's weird oh yeah oh

okay cool oh yeah you're going to have to skip all the way to I'll give you a little break you've been talking for an hour and a half now H yeah I can't feel my Thro anymore all right so where were we so in

the meantime while we reach the good slide does anyone have like I said feel free to ask your question uh in the Q&A section and is it clear so far for you guys feel free to put a thumbs up or a

thumbs down uh in the comment in the chat section think it did restart e it won't be long guys won't be long I think you muted yes yeah uh Judy Wade ask you a question here uh do you calculate net or

cumulative gamma so interesting question we're going to dive into our approach very shortly but understanding that the market makers they constantly hedge right so we do calculate the cumulative gamma for all options contracts of the entire options portfolio of market makers right however

we do not use cumulative change in Delta as we understand that there are multiple market makers and they all hedge constant during the day so it would not necessarily make sense to have a cumulative change in Delta rather just

understanding the momentary gamma exposure at the defined price and time in the trading session would make more sense uh in that aspect but it's a very good question it's actually something we've considered All right so do you see the

the the presentation yes everything's good yeah applicable uses all right um so we'll uh we'll dive into the applicable uses in this section we'll cover our approach and then we'll talk about the uh forecasting dealers slow um so let's dive into our unique

approach uh we really believe that uh it's a game changer that set us apart from additional analysis methods so let's break down uh step by step how uh do we approach this issue so we first we need to know uh the market makers

positions uh this is our starting point uh once we have the foundation we can uh then project how their Delta exposure might change under various market conditions and with this projection in hand uh we can uh subsequently expect uh

their hedging uh responses uh to these changes uh finally with all of this information uh we will well we can anticipate potential underlying price behaviors uh and this sequential process allows us to build uh a comprehensive picture of potential Market movements uh

which will gives us which will give us a significant Edge uh in our trading uh systems or strategies so why does proper position data matters uh this is the juicy the juicy stuff the proper positioning data and trust me this is this is the secret

sauce uh you'll see that our data will become your your your breast friend and it will tremendously help you in uh um in setting up your trades and U and your systems so uh market makers positioning um first of all uh you have

to know that market makers in terms of Delta hedging they're like little knee Juds right uh they have to be fast they have to be efficient and they're always on their toes uh when it comes to hedging uh but if you want to stay ahead

of the game we can just uh look at their hedging and response afterwards and we can not look at open interest uh solely that's kind of uh old school uh what we need to do is we need to be in their

business and tracking their entire portfolio um and look for for possible moves uh why do we need to do that well simply because that's how we spot these juy hatching flows uh before they happen um yeah so like IDs said

previously um open interest uh has his flaws and it's about as useful as uh having a compass that only points to the north right it gives you a number uh but it doesn't really gives you uh which way

the market the Market's really heading um and as EDS pointed out previously it's it it's it lacks The crucial uh it lacks The crucial directional as aspect needed uh to completely understand the Market's position so imagine you're trying to predict the

weather but instead of having a fancy meteorology setup all you've got is a wet finger in the air right uh that's what's trying to for to forecast market makers moves without knowing uh their proper portfolio uh positioning uh but

if you know uh what's in the market uh market makers portfolio that's like upgrading from a wet finger to a state of our Twitter station right uh you s suddenly you're not just guessing but rather you're forecasting what's about

to happen uh and to accurately forecast these behaviors uh not only we need to understand market makers current position but we also need to uh see how their exposure might change uh with different uh market conditions and um so what we've seen with other other

services [Music] um we've seen a lot of assumptions that that were made and that we didn't like so before we dive in uh into our tools uh let's take a moment to understand uh what are the similar Services offering

gex exposure uh assume and why do we feel that uh it's kind of dangerous assumptions to to do uh first first of all uh most of them assume uh that puts are always being uh bought and that calls are always being sold historically

um it has some through to it because we know that institutions often uh bought puts as a measure to protect their investment and they sold CS to uh to protect their well to collect premium sorry but today's reality is is is far more complex uh

matter of fact uh we know that some banks uh offer quantitative investment strategies that are centered around uh put selling so that completely contradicts uh this first assumption then uh it's kind of there's kind of an overs simpli oversimplification in these

Services uh what I mean by oversimplification um it's tempting to think that each uh contract as a simple transaction between One customer uh One customer and one market maker uh however the truth is far more complex we're dealing with a web of

multiple players uh and M multiple market makers compete for order flows uh so we have uh customer that are raging from retail Trader to institutional Trader to dealers to broker so we have a whole bunch of participant in the market

it's not just one market maker and one one customers doing their exchange so market makers act as a counterbalancer uh offsetting these combined positions of all uh Market Per participant uh participants sorry and combining these simplifications uh can be

dangerous uh why can be dangerous because if you're basing your analysis on false data uh or wrong positioning then you might have the wrong pictures uh in your head and you're planning on something that's that's false so hence

the importance of having true and correct POS market makers positioning uh to anticipate their hedging so here in this slide uh what we're presenting you is we're presenting you the positioning uh the real positioning as compared as open interest

uh as the open interest in both cases you can see uh around the seven the 4700 Mark uh a huge Spike uh but in the case of the open interest uh it doesn't tell you much about the direction of the market right

it just tells you that it's a level that is really active but it doesn't tell you if uh participants are bearish or bullish same thing if you go a little down at the 4675 Mark you can see uh another big spike

but it doesn't really tell you uh if it's a bullish or bearish sentiment if you look on the left side uh as you see the positioning then you can clearly see that one of these two levels which is

the 4700 Mark is bullish while the other one is bearish which gives a huge distinguish distinguishment and uh a better uh a better insight now here um here it's a it's two profiles basically you have the the gamma exposure the the the net gamma

exposure of the portfolio of the market makers in in red uh versus the the spot price so you can see as the proos the spot price moves up and down how uh their gamma their net gamma exposure behaves and in the blue um in the blue

line uh it's the same simulation but done with open interest uh as you can see with the open interest uh you can see a downwind trend as the as the as the spot price moves down and this is

majorly due to the Assumption uh made previously while if you take the the the positioning profile then you can see that the the profile is completely different and gives you a better Insight on on what's Happening so here uh as you've seen in

in our in our post and on our platform uh we offer the the gamma exposure heat map uh if you look at the if you look at the heat map based on the open interest assumption you can see here that uh

there are some positive gamma uh at the top some negative gamma at the at the bottom and and a neutral gamma around the the spot price uh but if you look at the positioning uh at the gamma exposure

heat map based on on on the positioning then the image uh become becomes completely different and you can depict uh you can depict the the the options positioning of the market makers a little more clear so you can see that

you have strong uh positive gamma nodes around the 47 for the 4740 Mark and the 47 uh 30 Mark and you have some strong uh negative nodes at the top and at the bottom of these of these levels um

so now that we know the importance of market makers positioning how uh will we project uh their challenge in Delta exposure um so first of all uh as as you can see here uh it's it's a chart that's we're

that we are all accustomed to it's trading view that presents the Candlestick you can have the price um the price in the vertical axis and the time as a in the hor horizontal axis um so our goal behind this tool is

to have a present is to present an action actionable Insight uh on our trading canva so the most logical way is to have uh the same uh axis as we we we use on a daily basis so have a Time

access and a price access along our tool and like I like I said the end goal is to know when where and why market makers will potentially buy or sell as to be able to uh to set up our strategies and

our trade before before Market open or at least to know what could happen around certain levels and around certain times of the day so here uh like uh EDS presented previously we have gamma that is a a a change of Delta um as a change

of underlying which uh present the you know whether if the price goes up or down how would the gamma react uh so this is um this is along our y AIS we have charm which present the Delta as

the time advances so this goes along our horizontal axis and for Vana uh which present the Delta as the IV changes uh you know options are options I are independent and it's also very difficult to present it in a canva that

can overlay a a a um a price action so what are the heat maps and why do we present uh gamma and charm on the heat map so basically heat maps are projection of how the the the gamma of

the market makers portfolio will react in both um time and price um so the two secondary Greeks that are associated with time and price are gamma and charm so they rely on the same uh axis as the Candlestick charts so it makes sense to

present them uh to present them uh on the other hand van uh well we need to need we need to know the change in IV for each for each contract um and the change in under underlying price or time won't showcase

the change in Delta of market makers right so it's kind of difficult to uh to show it in the same manner as uh gamma and charm on the heat map so this just comes to what I said okay now how do we present gamma

and how do we project it so to build our gamma heat map uh we first look at each individual contract and uh their gamma so here at the top on the first row uh you have the 22,000 contracts or the 20 uh th000 contract

that are on SPX and we build a gamma profile versus the spot price so for the top left you can see that the gamma has a um is is is less wide than the one uh let's say next to him and we do the same

uh profiling for all the all the different contracts once we have this profile uh we then multiply it by uh its positioning and aggregating these these contracts uh will give us a a net gamma exposure profile versus uh it's uh

versus the the the stock price movement so let's say that we position ourselves around the 4740 uh Mark we can see that if the price moves up a bit then our gamma will increase a little bit and if we move if the spot

price moves down then our gam our net gamma exposure will um move down so this approach is really nice uh if you want to be reactive right if you want to look at what's uh what's the scenario as we speak as uh nothing moves

but in our case uh we want to be proactive and we want to see what uh the gamma profiles would look like at different times of the day so we do the same exercise uh but we add a a Time

component we change also the time of expiration of each contract and we build this different uh profiles when it's done we aggregate them and that that's where the heat map comes at play so the heat map uh is

simply a an aggregation of all these uh gamma exposure profile versus uh the stock price movement and what uh what it allows us to do is to start today the day and uh know what could happen at different levels but also at different

time of the day so for this gamma projection um fixed strike IV is used for each contract uh there's a projection in time and underlying price which makes sense with uh which makes sense and scent with what you see on your on your trading

view on your candlesticks and for each uh contract of uh the market makers portfolio uh there is it's weighted by uh it's its positioning so it takes a lot of of computation to come up with this uh with this heat map um so there's

no assumption on whether puts or calls are bought or sell but it's the the the real positioning that that is presented on on the exchange that is shown um and I know that some of you guys have asked

if we have um a heat map that refreshes infra daily well we're happy to to to tell you that we're working on it and it should be coming uh pretty soon so for the CH charm projection it's basically the same thing uh but instead

of computing the gamma um as the spot pricee moves we compute charm as spot price moves and we come up with the same uh methodology to to build the uh to build the the charm heat map uh again

uh it's uh it's based on a fixed strike IV for each contract there's both a projection in time and in underlying price and um again uh it will be available as part of our intraday subscription as well so now that we know uh the market

makers position uh how to project their Delta exposure we'll talk a little bit about uh their expected hedging response great great so I'll be um taking the lead here uh with respect to uh understanding what will be the

hedging response of market makers uh with respect to different scenarios uh so let me just open up my slides how did you do to open up your slides on your hand uh when you wanted to share when you want to share you share

slides when I want to share you share slides hold on yeah share something slides okay I get it all right all right all right all right we have to do this again man this thing is why do we have two okay now it's okay

hold on this is your let's just remove it from ah this is not the best platform is triggering me a bit I'm not going to lie okay now I have to scroll all the way back oh my god well in in the meantime if you guys

have any question feel free to ask uh or just uh leave a comment here uh in the chat because I have maybe like one or two minutes of clicking to get to the right slide just give me a moment

yeah I would expect there to be a go to the page number but there it's just I don't know man maybe they're not it's not made for such long power points how many slides like we got like 180 like it's pretty big reminds me of

University those long nights of studying yeah nightmares yeah we appreciate the comments guys and if ever you have negative comments we would love to hear them too yeah it's all about being constructive here so if ever you have

something in your mind don't feel shy yeah the slides are bain and it's not say bad words here yeah well additional thickers so the thing is that uh you know like we discussed the zero DT aspect of things um the zero DT aspect

of uh SPX is playing a very important crucial role I would say uh in you know uh gamma and charm these second order Greeks uh so you know making this analysis on another ticker we're going to do it right uh but

we're not prioritizing it at the moment we'll be um we'll be having we'll be having other thickers in the future but we'll prioritize having the intraday data in the upcoming update all and if ever you didn't purchase your one-year membership uh and

you're currently subscribed to monthly uh you can just send us a DM on Discord and we can arrange that for you there's no problem so yeah like we discussed we aim to have all the tickers in the future

uh not immediately in terms of structuring the servers and the data we're going to become like literally Citadel type of level of servers uh but yeah currently it's just the SPX but we understand a lot of you guys like to trade QQQ and and the

NASDAQ uh so yeah NASDAQ can be pretty wild and having such information is pretty interesting but one thing to understand is that the SPX options are extremely traded by All In institutions um and um so the fact that such huge volumes

are being traded on the SPX options uh is partly responsible of the accuracy that we're witnessing someone here is asking I have asked for this before I shall ask again please record a daily video before Market open not everyone can attend a voice

call it is is actually recorded I don't know if I think you should be on the Discord but uh there is a section uh in the Discord chat on the complete bottom it is called recorded sessions and uh

couple minutes after uh we actually do uh the morning call uh I post it in a Google Drive and you guys should have access to the recordings and so far I haven't deleted any so you could have access to all of the uh pre-market

overviews that we do uh on a daily basis sometimes I'm not available uh so I either someone else takes a lead such as dog who is not available today uh or I do a text analysis but usually almost

four to five times a week I should be uh on live on Discord this is answering Shiva so if ever you have a question feel free to just tag me or DM me on Discord and I'll be glad to assist you all right let's

get back to it all right so we benefited from a little pa here time to rest my throat uh so uh now it's about expecting the hedging response of market makers right so now Yousef went over how do we

project the gamma and the charm exposure across you know time and underlying price using fixed strike volatility uh with minimal assumption now we want to understand their hedging response right at the end this is what we want to know so overall

what we need to understand is that market makers Delta hedge if their Delta increases they need to sell the underlying simple if the market Maker's Delta decreases they need to buy the under n right that's as simple as

that so uh important context so first of all there are multiple market makers each May hold a very different position but us as Traders we want to understand the overall Global picture right this is our goal right so uh let's have a look at

Gamma and how market makers will be responding with respect to it uh different gamma environments so in a positive gamma environments like we previously discussed right the hedging flow of market makers will be against the underlying price movements whereas in a negative gamma

environment the hedging flow will be with the underlying price movement right so uh and don't forget that gamma exposure is also not constant like everything is moving like you have to keep this in mind everything is moving so gamma is not necessarily constant

there's areas where gamma is a lot more concentrated and where this Dynamic is going to be more evident right so in a positive gamma environment if gamma is extremely positive very strong uh eding flows against underlying price movements

will be creating some form of support or resistance playing against the underlying price movement and in the neg negative gamma environment if the gamma is very negative we will have some more volatile price action all right so uh like we said High positive

gamma environments often yield more constrict constricted price actions and low gamma environments set the place for Wilder price move movements it doesn't mean it price has to move right if every the market is just dry right it's a

holiday or something there's no Market participants trading doesn't mean it is going to move however if there's a lot of volume in the low gamma environment what it means is that market maker will not be trading against oning price

movement right so it will free up the space for wider quicker price underlying price changes so let's dive into the positive gamma environment so in a positive gamma environment it is market makers breath right there's no urgency why fairly simple because the

Delta is moving with the underlying so imagine this right we said in a positive gamma right the Delta moves up as the underlying price moves up so let's say you're at zero okay um so let's just go into the next slide

let's have this example here right uh you see here I kind of circled uh in yellow we have blue is positive uh gamma right meaning that this is how the Delta exposure is going to be looking like as

the underlying price is moving up so we understand that the Delta exposure is increasing as the underlying price is going up this is positive gamma right Delta increases with the underlying price so imagine you're a market maker and you are Delta hedged meaning your

Delta exposure is counterbalanced with your underlying position and your overall Delta is now zero right you're located here at Delta equals zero if the price starts to increase your Delta is also going up what does that mean potential profits right positive Delta

means that you can profit from an increase in underlying price and by effectively hedging your Delta constantly you're able to profit from potential underlying price changes right so as your Delta increases and the underlying price increases while the

value of your options position increases so yes you are going to be Delta hedging in the positive gamma environment however you're not scared as a market right you can hedge as you wish we know that firms do it systematically at a defined rate of

time or risk but just keep in mind keep this in the back of your mind so hedging does not have to happen immediately in a positive gamma environment as there is some form of potential profit uh to be

gained by an underlying price change and similarly on the downside so with a positive gamma we understand that the slope of Delta is positive so when when the price goes down the Delta goes down right what does that mean when you have

a negative Delta so let's say you're hedged you are hedged right so your Delta is zero as the underlying price starts to go down your Delta is going down so from zero your Delta exposure starts to become negative meaning that you can

profit from a downside move right so it only makes sense to understand that in a positive gamma environment every hedging represents an opportunity to lock in directional profits regardless of the direction as long as As You hedge constantly so this is a very interesting

uh thing to consider which is not true in a negative gamma environment where you're actually risking losses and you have to hedge quickly with the direction of the underlying uh price movement so in a positive gamma environment the

greater overall gamma exposure the greater the probability to witness stronger counter Trend hedging flows the more potential profit there is from hedging activities right and the greater odds that the market making firms will hedge right when the gamma is

peing expect some form of hedging to be occurring at this point right because this is an area where not only well their Delta is going to be changing the most so in terms of risk market makers will have to hedge

uh at this moment statistically speaking most Market maker will have a very high gamma exposure meaning that the hedging has to occur near the peak and Gamma but also you need to understand that if you're hedging at the peak and Gamma

exposure what you could profit from uh you could profit basically more from any directional move from that point on so the peaks in gamma exposure right uh they're points of elevated gamma and these Peaks very often will play as a

form of support or resistance don't forget positive gamma means that market makers will buy or sell against underlying price movement so if ever we break above a peak in gamma exposure we would have less pressure continuing on the upside let's say we have it we're

going to dive into examples right um right after but overall just understand that areas where gamma exposure is peing is very high act as a form of support and resistance and once these areas are broken well something that used to be a

resistance will turn into a support and something that used to be support will turn into a resistance as gamma is playing both ways it is simply a reaction it is depicting the change in Delta right and the reaction will be

market makers hedging against their price movements so once a level is broken if the price starts going down we'll expect some buying pressure that will whereas resistance will now be acting as a form of support and vice versa we're going to dive into examples

with some heat maps and you guys will understand exactly what I'm talking about Naturally Speaking because market makers hedge against price movements in the positive gamma environment areas of lower gamma often act as what we call part of leas resistance I always say

this in my morning videos so um um like I said um the path of least resistance is an area where the gamma exposure is lower doesn't mean it has to be negative it just means that the gamma exposure is lower think of it this way

moving towards an area of higher gamma exposure we would expect hedging flow against the price movement so the area of lower resistance if you want would be the area where the gamma exposure is um where the gamma exposure is the

lowest right so we're going to dive into the the heat map in the next slide um so we're going to see in the heat map that uh the yellow lines on the heat map represents the area of lower uh gamma exposure that we like to

to call part of this resistance this is a very good example so this was December 22nd 2023 okay this is from our platform so we can notice the peak in gamma exposure is defined here by the green line all right so we understand

that this area this line represents somehow a level an area of support or resistance understanding that moving towards the screen line we would expect some form of support if this green line is broken on the downside here we are going to

witness that this area of higher gamma would now play as a level of resistance which was a support beforehand right now that we're moving up towards this area of higher gamma exposure we would expect this area to play as a form of

resistance now pay attention in a positive gamma moves do not necessarily happen instantly we need to understand the story that the candlesticks were telling us right now we can notice that it is slowly being rejected and near the

end of the session we have a very sharp movement towards the area of lower gamma exposure because we have less pressure to move there right market makers are not as actively buying on the way down as they will be selling on the way up so this is

creating some lower think of it uh think of it like quicksand right in a positive gamma you're like inside quick sand it's very hard to move uh like driving your car in mud right it's it's hard to move as market makers

will be selling and buying against uh the direction you're trying to take right but in an area of very low GMA exposure you're on the highway so there's nothing stopping you from um from moving more freely and generally

this area of lower resistance is going to be represented by this yellow line and it is what we call the path of each resistance it's the gamma through okay so uh this is one prime example where in the single day we've

witnessed how a peak in gamma exposure and a low in gamma exposure can have an impact on the overall price action for you guys I'm going to be sending you at the end uh a Discord link if you guys want to join the Discord um

and also you will be able to start your free trial on the platform if ever you're not subscribed so in a negative gamma environment there is a uh potential loss like we discussed right as the price goes up the Delta goes

down so what that means is that having a negative Delta is a bearish position now as as the price is going up you're actually increasing your downside exposure so you have urgency to hedge in a negative gamma environment as the

price is going up sorry yeah as the price is going up your Delta is going down so you're gaining bearish exposure as the price is going up this is this is very bad as a market maker as the price

is going down your Delta is going up nonsense right your your Delta is increasing as the price is going down the more the price moves down the more money you're going to be losing right you're you're gaining a positive

exposure in a downtrending market so in a negative gamma environment things get spicy for market makers and we're generally witnessing some stronger hedging activity in these environments so aggressive hedging with the underlying price movement in the negative gamma environment and we get

more explosive volatile price action so this is covering the theory and you know not only the theory but how you could apply it we're going to dive into some case studies on the platform uh in a couple minutes but now we're

going to moveing move on to charm and understanding the market maker response with respect to charm in a positive charm remember we said positive charm is suppressive right so Market Market maker will be selling as oops market makers will be selling as

the time passes by why positive charm meaning that the Delta exposure increases as the time moves forward meaning that market makers will have to be selling as the time passes by negative charm well Market maker will be buying negative charm is supportive

right as the Delta exposure of these market makers will be decreased over time right and as a response these market makers will have to be buying as the time is passing by so generally during the trading day the magnitude of charm intraday will be

lower than gamas during the trading session it will be providing some interesting um some interesting insights on strikes that are pinable I'll get into it very shortly so basically where let's just jump into the figure directly I think it's going to be easier

so here for a call or a put right we understand that being above the strike price we get a suppressive charm all right this is for long options being below the strike price we get a supportive charm so we understand that

as the price is either slightly above or slightly below the strike price we're going to get some form of hedging flow that are going to push us towards the actual strike price if we're above the strike price we get

some suppressive charm meaning that we get some form of setting pressure by market makers over time and if we're slightly below the strike price uh we get some supportive TR meaning that the market makers will be buying over time and this

is kind of like pressuring us towards the point zero basically right so don't forget tri's Dynamic is not as powerful as gamma's dynamic in terms of magnitude and I'm going to show you on the platform how to see this uh how but

it can play some very important impact uh just like we've seen in different trading days in the past and don't forget you guys have even though you're not subscribed you can have access to the platform and see historical data for

yourself uh we're trying to be as transparent as possible here right so going back to the previous slides the magnitude is lower than gamma during the trading session and it provides some insights on potential pinable strikes just like I described

right where we have positive charm above suppressive and negative charm below supportive and generally this is these um these uh pinable strikes are where the market makers are along a lot of options and generally we get close to them if we're

hovering around these strikes near the end of the session so to have an example in a mathematical way right uh charm has more effect when first of all gamma is very low right so think of it like uh the following way right if the

overall impact is caused by uh a being charm and B being gamma well if gamma is extremely low or zero we'll understand that the overall impact is going to be driven by charm and vice versa right and also near the very very

end of the session where the hedging flow uh from charm becomes more important and don't forget price can go up or down time always moves forward so charm flows can be e more easily predictable uh with respect to

understanding where we're located on the heat map and what is the overall charm exposure so on the heat map here we can notice two colors we have orange and we have blue orange is positive charm meaning it is

suppressive blue is positive uh sorry blue is negative charm meaning it is supportive all right during the trading session the magnitude of charm is not very high right as we approach the end of the day we notice that the color

becomes more intense right the depth of the color represents the magnitude of the the value of charm so dark blue means more negative charm more more supportive and dark orange means more suppressive more positive charm right and as we can see near the end of the

session uh as charm becomes more elevated we get some form of supportive action uh in the blue area where the price is kind of holding and some more suppressive action in The Orange area where price tends to just fall back and

then we reach out this point of equilibrium like we discussed where we have some suppressive charm above and supportive charm below right so in the blue market makers Buy and in the orange market makers are selling so we kind of

pin around this area so don't forget this is these are days where um most of the days gamma is going to have most impact but as we approach very near uh the end of the session uh we can very

often see this Dynamic play out so van is more tricky at the moment we do not have a tool on the platform we're working on something pretty interesting um but we're going to dive into the theory of the market maker

response on Vana like we previously discussed right this is very very tricky why because every option contract has their own uh Vana and IV value right the IV of every single contract can change independently right so it may increase

it may decrease or just remain static and market makers they hold different positions in every contract right so it is somehow Ms computationally speaking um but we're working on something very cool and we'll be glad to be sharing this to you guys uh very

shortly we might be doing a whole presentation on Vana uh in the future I think that will be pertinent but let's um like we said an assumption L model we cannot be retrospective uh we have something in the works and we're going

to have a presentation um on Vana and how we can use Vanna for actual insights so anticipate the underlying price Behavior trading right so um first of all there is the positions we can understand what position is bullish what

position is bearish we also have uh the market makers exposure so we can understand how the market makers will be hedging meaning buying or selling as the underlying price Moves In other words gamma uh so this is helping

us with understanding where price might potentially go for instance towards an area of lower to of high towards low gamma exposure uh this is good for directional trading but also understanding where we have some big walls of high gamma right where

price might not be going where some of our users are selling options Beyond these gamma walls right and collect premium on a daily basis so there's multiple different ways of trading uh using our data either being directional Trader or you know simply a premium

option premium collector uh there's different ways of doing it we're going to dive into some examples where we can understand where or the price will or will not be landing uh in a trading day how like I said there's an infinite

ways of doing it you guys are the Traders you're the master of your own craft you can be using Futures a lot of guys here in the group are using Futures to trade um you can use credit spreads

debit spreads uh naked options uh whatever you want uh to be able uh to trade and profit so I'm going to be sharing my screen right now and uh hop on the options that platform and show you some dates with some very particular

example where we have positive gamma negative gamma and a couple tries with some triarm examples right so I'll be closing this um this huge PowerPoints all right so uh how did you guys like it so far amazing so you guys should be able to

see my screen um so uh this is the data for the upcoming trading day we have an interesting setup we're going to be diving into some examples uh that I think are flagrant right uh amazing on this day we had a user he made he made

200 Grand I don't know if I don't know if you you remember Yousef there's this Trader who made 200 Grand that was crazy yeah this was insane so uh you guys should be able to see my screen do

you guys see my mouse yeah we can we can see okay so on this particular trading day we can notice uh different things on the left hand side we have the gamma exposure heat map on the right hand side

we have the zero DTE customer positioning so we understand that a selling just just going on the overall positioning we have a breakdown by strike of customers position all right uh broken down by calls and puts right so generally when you buy a call like we

discussed it has a bullish outut when you sell a call it has a bearish Outlook but what it means is that the customer is betting that the price is not going to land above the sold call the customer will profit as

long as the underlying price stays below the sold call when you purchase a put it has a bearish Outlook when you sell a put all right when you sell a put you are betting that the price will stay above

the strike price meaning it it has some form of bullish Insight what means is that customers are betting that the price will not land uh will not be landing below the given strike price where the p is the put is being sold so

here we had a very interesting setup we had an area we had a heat map with relatively low gamma exposure for a very wide range and on the downside we had this Cloud this area of high gamma exposure right we can understand that in

the lower gamma exposure so don't don't forget blue is positive gamma and red is negative gam let me just add the scale for reference I'm going to be adding the scale on the charts so here we have positive gamma in

in blue and negative GMA in red we understand that light blue means very low gamma exposure right and we can understand here that we have lower gamma exposure in this range right until we arrive near the 5190 Mark where

we can see that the gamma value is becoming 1,000 Delta for every 2.5 points right which is becoming kind of significant we fine-tuned the color scale for what we've been observing as acting as resistance and support levels right so we're going to be noticing that

as soon as we travel through this area of lower gamma exposure what happened here right we had some form of support So this can be explained by two different things the first one is that we hit an area of higher gamma exposure

meaning that as we move down so yes it was positive gamma so meaning that market makers will be buying as the price goes down but the gamma value was low so the impact of this hedging was not significant until we reached an area

where the gamma exposure is higher okay higher gamma means that the hedging response will be stronger meaning that we expect some form of support around this area where the gamma exposure is becoming more elevated the gamma was only peaking

lower right this is represented by this green line This is the peak in gamma but what we can understand is that as we approach into this area we would expect some form of stronger support on the right hand side we can

notice that puts starting to becoming sold very heavily by customers we're speaking thousands and thousands of contracts for every strike price and this was Zero DTE options these options were about to expire on the same day so we understand that these customers which

are most likely not retail Traders were betting that the price would stay above the 15190 okay this was the end of the quarter keep this in mind very strong strong put selling around this area and what we can notice is that we had call

buying and put selling on multiple different strikes so this was very bullish positioning overall uh between the 5190 all the way to 5300 so as we had this move down towards this area of higher gamma exposure we supported we moved towards the area of

lower gamma exposure represented by this yellow line okay and then we had just an explosion in the underlying price don't forget this was the end of the quarter and every time we were hitting these peaks in gamma exposure we had Little

Couple minute five to six minute breaks and then a continuation to the next level and to the next level until the end of the session so one way to play it was to be selling options below this area of higher gamma exposure

understanding that first of all Market uh customers are betting that their price is going to say above also understanding that market makers will be buying on the way down so some people in the chat profited by selling put credit

spread and this guy who made 200k on that day bought a lot of Zero D options near the close and held for a huge huge move up and yeah he made he made a huge sum of money so the date on This was

um of this chart was May 31st I'm pretty sure some of you guys remember this day another day we had a very interesting setup I'm just going to take some key examples that are easy to visualize but the concepts are the same

uh whatever um whatever day we can pick we can go over them but I'm just going to pick some days where um we can see uh this action pretty easily so we covered here an area of moving towards an area of higher gamma

exposure right what about now moving towards an area of negative gamma exposure so let's go on May 1st 2024 once again we had a interesting setup on the downside this was an fomc day and already we had hints that the

price action was not going going to be going lower why customers were betting heavily by selling puts from 5,000 all the way down we're speaking huge positions here 5,700 contracts for every single strike price we're speaking thousands of contracts

this is completely going against the Assumption where puts are being bought by customers and calls are being sold we can see calls are actually being bought and puts are actually being sold so understand that the Assumption of understanding

whether uh puts are being being bought and calls or being sold is completely false so on the right hand side we can understand there's a positive position and on the left hand side we can understand there's a negative position

so selling options on the left hand side by customers and buying options on the right hand side so here when customers sell options market makers take the opposite hand right so they're long options and this is causing this

positive gamma environment so this is positive gamma from sold puts meaning that customers are betting that the price is going to land above this area and also this is causing some positive gamma meaning that as the price moves down market makers will be buying

the underlying so we had this kind of support uh and choppiness you know it was FC's who we were kind of waiting for the fomc announcement and then the announcement happened what happened here we crossed into the negative gamma

environment the gamma equals zero so the gamma flip we're going to notice we don't have a single GMA flip on our heat Maps simply because we do not assume puts or bought and cause or Sal gamma flips can occur at any time of the day

and will be represented by this dark line here okay it is always between a blue and a red area so we have a gamma flip here and we can see what happens is that there is some form of Readjustment as we

cross into the negative environment now forget we have multiple market makers right [Music] um and their hedging algo if you want will be changing as we cross into a different environment they go from being sellers against the price movements to

buyers as the with the price movements right so we have this little five minute consolidation here and then we clearly see that the price action is being supportive and we land into this negative environment and look at what

happens to the underlying price right it just explodes up right we just had this huge pump uh of like 5060 points in matter of 30 minutes and don't forget negative gamma happens both ways right if ever the flow

is changing and now there's some more selling pressure what expect Market maker if they were buying on the way up they will be selling on the way down and and we had this we had this dump right after through this negative gamma

environment where we finally had this slowdown in the lower positive gamma environment where market makers are now turning themselves into buying against their price drop so this is how we can see and understand the overall Dynamics right of um the market makers

hedging in different environment okay so this was another prime example and what I like to do is also we have this 3D stri surf which is just a 3D representation of this heat map so we can better visualize how high is the gamma exposure

and where do we actually cross into the negative we have this plane here where gamma equals zero and we can understand that once we cross This Plane we have some more volatile action right uh so one thing I like to give as a analogy is

in a positive gamma moving towards areas of higher gamma is is harder imagine that these balls have to rise towards a mountain right towards the mountain peak it gets harder and harder right to go up towards a mountain peak think of

climbing the Everest for example so we will get some setting pressure as the underline prices going up from the market makers end so climbing the mountains is harder and there's less pressure for the online to be moving towards the lower points in gamma

exposure this is just an analogy so it's not perfect but it's just a way to understand better uh these Dynamics in play right so I like to use it as a form of heat map this is why we created

the heat map because we have the x-axis that is common with the y- axis and we can just understand the color of the background to understand the overall gamma exposure this is why we use this uh two-dimensional approach rather than

just having gex levels not only that instead of waiting for the gex levels to increase or decrease as as we change in price and time we project it even before it happens so we can know the critical areas even before we reach them right so

this is the overall added value that we have here using this form of heat map another time where we had extreme negative gamma uh exposure was in um October 2023 let's just jump back to this day so this day was

phenomenal I think I profited very well during this trading day so we can notice that we were in a very negative gamma environment here okay notably caused by options buying both calls and puts on the end of customers what is

this causing right on the right hand side we have POS postive position on the left hand side we have negative positions right this is customer position okay so when customer's position is positive market makers are short options right they have the opposite hand so all

of this zero DTE options positioning is majorly impacting this uh overall market makers gamma exposure right we can notice here that the gamma exposure is negative netive meaning that the market makers have to buy and sell with the

underlying price movement with the underlying flow so if ever we have some form of pump towards the upside while market makers will be amplifying this pump we see that we barely have any retracement here the only time we start

seeing a slow down in the underlying price is when we reach this area of lower negative gamma environment and here where the gamma actually flips positive I like to trade these areas of gamma flips for a very simple

reason whenever we are in negative gamma environment and we want to cross towards a positive gamma environment think of it as the following market makers will go from being buying with the undering price movements to start selling against their

price move so it's like if you're driving a car and you're like pressing on the gas pedal and then as soon as you reach this gamma flip where we cross into the positive gamma environment you press the brakes right so this generally

acts as a resistance or support level whether it's on the upside or the downside and we generally have some form of reversal near these um near these gamma flip lines right gamma equals zero uh so think of it as areas of

Readjustment of the overall Delta hedging uh of the overall Delta hedging of market makers so this was a prime example where we just Zoom through the entire range of negative gamma exposure we stopped right at the gamma flip and then near the end of the day

charm kind of brought us to this um right we have suppressive charm and we landed right here at the 40310 right where we had supportive charm low and suppressive charm above so this was a prime example on how to use

options de data another day where we had uh let me think when was we can just take a random day uh lately we've had um lately we've had uh this customer on Twitter I call it the IC man um

yeah so near the end of the day we we like to look at the charm as uh it has some more significant impact I personally I don't look at charm until the end of the day [Music] um yeah we can go and see uh different

uh trading days we're going to be looking at uh for instance we're going to go closer so I just show you that I'm not picking specific dates and this can be applied to any trading day so let's just go to

um some of you guys asked last Friday so let's just go on this Friday let's go on my personal dashboard by the way we can you guys can edit your dashboard as you wish and add the charts of your choice all right and just place

them the way you want on your canvas so we we had this customer placing huge bets lately one DTE B that he usually rolls whenever he's not right so Friday was a prime example of that customer failing early

in the session and we're going to dive into uh the Dynamics in terms of market makers exposure and also the positional aspect of this trade so here we can notice an Aon Condor being being sold by a very

large customer so he's betting about 8,000 contracts so selling a credit a call Credit spread so selling the 5615 calls and buying the 5620 calls similarly on the downside this guy is selling the 5560 puts and buying the

5555 puts so we're noticing here that because of this starge position we have a high gamma environment near the 5610 adjust to very negative gamma environment so this short option position by this customer is making this Market maker

long hence this positive gamma and this long option position is causing these negative gamma environments right adjacent right next to this positive gamma environment right overall we can see the Dynamics the gamma dynamics that is caused by this position so Above This iron Condor

we have some s options sold calls so these customers are betting that the price will be staying below these sold calls we see that there's a cluster from the 5640 all the way to like 5715 uh customers were selling huge

amount of calls right so they're betting that the price will be staying below the 5640 so overall taking this heat map don't forget is taking all the expirations all the positioning in options of market makers and we're projecting their gamma exposure across

the day and across their prices here we see a peak in gamma exposure what did we say about the Peaks they often act as support and resistance and we tend to move towards the areas of lower gamma exposure which are their yellow line so

if ever we break this green line first of all that means that we have some customer flow right because customers were buying more than market makers were selling so we were able to cross this peak in gamma exposure

so this hinted us that we will be moving potentially moving higher most likely towards the path of this resistance also what we can see is that the critical point of this customer right is the 5615 so he's short

8,000 8,000 calls at this particular level so his pain point is the 5615 so we Mark these two levels the green line and the 5615 as crucial levels for a potential squeeze near the end of the day and this is what

exactly happened right so as soon as we broke the 5600 uh we had a move up towards the 5615 Mark where things kind of Consolidated Consolidated for a while and then we had a move towards B of Le

resistance had more resistance moving towards an area of higher gamma and move back down to the area of PA of least resistance and then as the price moved up in this area of higher gamma we stayed stuck in

this near this area of lower gamma environment right between these two peaks in gamma exposure and then as soon as this got breached we retested the level the the support now turned into a resistance and we had a user this Friday

who made like on the Discord he put most this P he made like 65 Grand on this drop right so the price went down and we were moving very quickly towards the path of least resistance where we even had

negative gam exposure which accelerated this move down and where do and where did the price hold I mean it's not magic it's just math right so we held right on the peak in gamma exposure right where we had positive

gamma and where the market makers would be buying as the price would be falling into this area right so this is how we can use the gamma levels the gamma Dynamics with proper understanding right we shouldn't be jumping to conclusions we

should really be using this data uh to understand the overall market makers Dynamics how they will be responding with respect to a change in time and it changed to underlying price if you've made it through this three-hour long

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