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Renamed yelyah2 series
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verymeticulous
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Gamma Signals Firing Again!!
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============================
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| Author | Source |
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| :-------------: |:-------------:|
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| [u/yelyah2](https://www.reddit.com/user/yelyah2/) | [Reddit](https://www.reddit.com/r/Superstonk/comments/nqwtms/gamma_signals_firing_again/) |
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---
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[Education 👨🏫 | Data 🔢](https://www.reddit.com/r/Superstonk/search?q=flair_name%3A%22Education%20%F0%9F%91%A8%E2%80%8D%F0%9F%8F%AB%20%7C%20Data%20%F0%9F%94%A2%22&restrict_sr=1)
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TLDR: It's baaaacckkk!!! The signals are firing up again for another gamma squeeze!
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*BIG Edit:* So excited to see how much this took off in the last few hours! I didn't properly get the chance before, but I'll tell you now why I'm so excited...
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As you can see, for the last few months I've been anxiously pulling my options data/running my algos every day, and disappointed when I haven't seen that gamma spike since the beginning of March. I've seen other tickers get their spikes, watched AMC's spike for like 2 weeks straight, but no GME....
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Then finally last week there was a spike! And I couldn't wait to tell everyone! But it quickly went away, then the three day weekend happened, and was like... was it just a fluke?
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Then today, [u/Criand](https://www.reddit.com/u/Criand/) wrote an epic post that put some pieces together with my gamma spikes and the FTD cycles. I ran my algos between meetings this afternoon, and there she was, that beautiful golden spike came back! I couldn't wait to run onto the internet to tell all my friends! Cause lord knows my husband doesn't get excited about this stuff! And my two young kiddos were having some kind of crisis about cheese (understandable though).
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Anyways, it wasn't a fluke, these spikes cluster together for the big ones. I'm excited.... I'm jacked.... I can feel it.... I have a hard time understanding all the dd, but I understand this work that I've poured a lot of myself into, and it's telling me our chances of that MOASS just went up by a lot... like a lot....
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I have backtested my method using various machine learning/deep learning methods, and the chances of significant increases (5%+) with one of these spikes is around 70%, and goes up to ~80% with multiple spikes. Chances of big increases (10%+) are around 50%, and in GME's case... well... it likes to go BOOM!
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I don't put all my faith into these machine learning methods though, probably the nature of an actuary. Machines get you half way, and you have to read the numbers to make calls for yourself. My machines are telling me the conditions are ready.... the other dd is telling me we're ready... and most importantly for every individual ape to feel for themselves, my gut is telling me we're FUK'ING READY!!! LET'S GOOOOOO!!!!!!
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Original Post
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So excited to share that another gamma neutral spike started today, up to $9,233 (up from the $7,387 spike last week)!
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See this post from today by [u/Criand](https://www.reddit.com/u/Criand/) about the interesting relationship between the T+21/T+35 cycle, the gamma neutral spikes and the fuk'd level of hedgies: [Gamma Spike and T+21/T+35 Cycles](https://www.reddit.com/r/Superstonk/comments/nqbera/things_are_shockingly_similar_to_the_february/)
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Graph below in log base 10 so you can see this beauty:
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[](https://preview.redd.it/3as9umpc5x271.png?width=910&format=png&auto=webp&s=3829e979f085bac25fb0b00992d14d45e4fc5505)
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GME 1/4/2021 - 6/2/2021, Log Base 10 Scale
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In the middle of work, but too excited not to send this out. I can comment more later, but yesssssssss gammmmmaaaa!!!!!
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copy/paste explanations from prior posts below for more explanation:
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My work is built on the idea that the market is largely unpredictable, but one particular kind of behavior is certain - hedgies like to hedge. It's written into their algorithms. Specifically, they like to delta hedge and gamma hedge. This work tries to profit on this one particular type of buying/selling behavior. I have a little data dictionary at the bottom if you need a refresher on terminology.
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- Delta Neutral: price that creates a total market delta of 0 across all GME options (all expiration dates) for a given date. General observation is it acts like a theoretical floor (although the price can go lower, as seen in February). My theory is that as the underlying approaches the delta neutral, call options go on sale. As people buy call options, MM have to buy the stocks which increases the price. Most stocks like to hang out above the delta neutral, some dip below and create pressure that can shoot them back over the delta neutral (like what happened in February), and some like to hang out below (like the VIX).
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- Gamma Neutral: price that creates a total market gamma of 0 across all GME options (all expiration dates) for a given date. General observation is it acts like support/resistance between the delta neutral and the underlying, and typically bounces around between the two prices for most plan (like we have seen with GME since April). It also goes crazy in periods of high volatility (as you can see by the infinite spikes).
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- Max Pain: price that creates largest loss for option buyers and largest gain for option sellers. This is a controversial topic because underlying prices can drift towards this point. There are typically large areas around the max pain that doesn't make a lot of difference to the profits for option buyer/sellers. It can be used to help gauge where the equilibrium of the options data is, but there is often a wide range around this price point that does not meaningfully affect MM profits.
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Disclaimer: I'm just an actuary that likes to play with options data and builds models to trade for a hobby. I have no experience trading professionally or offering any advice to anyone. Nothing is certain in trading. It's all probabilities and what increases/decreases your chance at a profit. This is just one indicator for one type of price movement, and there are many other indicators that can help you make investment decisions.
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Gamma Bombs All Over the Market Today!
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======================================
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| Author | Source |
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| :-------------: |:-------------:|
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| [u/yelyah2](https://www.reddit.com/user/yelyah2/) | [Reddit](https://www.reddit.com/r/Superstonk/comments/nrwp82/gamma_bombs_all_over_the_market_today/) |
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---
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[Education 👨🏫 | Data 🔢](https://www.reddit.com/r/Superstonk/search?q=flair_name%3A%22Education%20%F0%9F%91%A8%E2%80%8D%F0%9F%8F%AB%20%7C%20Data%20%F0%9F%94%A2%22&restrict_sr=1)
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TLDR: Gamma spikes were firing all over the market today like little bombs, all while the market was tanking... The GME gamma spike from yesterday came back down, but we have a lot to look forward to! Not much reading. Lots of pretty graphs to look at!
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Before I dig in... I just have to give a big thank you to this community. This is really special place, filled with the best people, and I'm really proud to be a part of it and contribute however I can.
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*Chart Update*
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Here's a follow-up to my post from yesterday: [Gamma Signals Firing Again](https://www.reddit.com/r/Superstonk/comments/nqwtms/gamma_signals_firing_again/)
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I expanded the GME chart below to further back to 11/2/2020, so you can see more of the spikes as GME starts to move up, and you can see what I mean when I say they start coming in clusters.
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[](https://preview.redd.it/hg45aqzr46371.png?width=910&format=png&auto=webp&s=54a5121e3391051e3f800512cc9f56dfcaecd2a2)
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GME Log Base 10 Scale, 11/2/2020 - 6/3/2021
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I didn't share this with you yesterday, because I didn't want to distract from GME, but yesterday there were gamma neutral spikes happening all over the market, like little bombs going off. I shared these with [u/Criand](https://www.reddit.com/u/Criand/) last night, and we were wondering if the recent wind-down rules coming into effect was starting a little chain reaction. Then today, the whole market was red! I'm not sure what it means yet, but feels like the market is becoming more and more unstable.
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Here are a few of the charts from the tickers that were also set off for today. Usually, there's like... one or two a day, and I copied 15 below!
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But first, a quick refresher!
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*Quick Recap*
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My work is built on the idea that the market is largely unpredictable, but one particular kind of behavior is certain - hedgies like to hedge. It's written into their algorithms. Specifically, they like to delta hedge and gamma hedge. This work tries to profit on this one particular type of buying/selling behavior. I have a little data dictionary at the bottom if you need a refresher on terminology.
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*Back to the graphs...*
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Reminder, this is not to distract you from GME, just to show you what I mean when I say it was strange that these were all firing at the same time today.
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I don't know how... or even if... these tickers are all connected, but they definitely do share some interesting timing/patterns.
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[](https://preview.redd.it/52bmcwgq56371.png?width=910&format=png&auto=webp&s=25e650dcebecc63e513c6a741e5235da31fcddad)
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AMC 1/4/2021 - 6/3/2021
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[](https://preview.redd.it/pl4cqly7g6371.png?width=910&format=png&auto=webp&s=65d7d72d6f2ce01c09e29d93824f8814a6b08958)
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ABNB 1/4/2021 - 6/3/2021
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[](https://preview.redd.it/ggp9r0h466371.png?width=910&format=png&auto=webp&s=ae5be1250eda029ec639fd75814cb9ba3e7a3a14)
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RKT 1/4/2021
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[](https://preview.redd.it/f7syzd0zf6371.png?width=910&format=png&auto=webp&s=4c75c9850d95f4438843baa38a8fcc081ddd2378)
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BLNK 1/4/2021 - 6/3/2021
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[](https://preview.redd.it/mu4aiuz2g6371.png?width=910&format=png&auto=webp&s=2fce5a6af885c0258daca54c833fe8d6b70d8e64)
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LMND 1/4/2021 - 6/3/2021
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[](https://preview.redd.it/pw56e3b776371.png?width=910&format=png&auto=webp&s=e26a1ac31911646be8ed66853fc660e8feb67165)
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FUBO 1/4/2021 - 6/3/2021
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[](https://preview.redd.it/rmbrwdcc76371.png?width=910&format=png&auto=webp&s=b9ca5760688cf194e26d62c8b6c551267cfaa67c)
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PLAY 1/4/2021 - 6/3/2021
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[](https://preview.redd.it/9zdhg0rf76371.png?width=910&format=png&auto=webp&s=6325b7f3e95913e820acf5ab69b131330922c2d0)
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CCIV 1/4/2021 - 6/3/2021
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[](https://preview.redd.it/b9ng41yne6371.png?width=910&format=png&auto=webp&s=4d81ace4143a8e683459e8ecc5b83f0fe15e2ff1)
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BBBY 1/4/2021 - 6/3/2021
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[](https://preview.redd.it/ekt4974te6371.png?width=910&format=png&auto=webp&s=ae3ccd4c5b983cd94f23c4ad96e78166779dc410)
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TLRY 1/4/2021 - 6/3/2021
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[](https://preview.redd.it/vd4bsp0ye6371.png?width=910&format=png&auto=webp&s=d56b5d48a6f350f2c4798c68e871576ca87cda29)
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NVAX 1/4/2021 - 6/3/2021
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[](https://preview.redd.it/klv2kiq1f6371.png?width=910&format=png&auto=webp&s=9fcfc574683e383bb710bd646623a9982884c4da)
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WKHS 1/4/2021 - 6/3/2021
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Again, eyes on the prize. I doubled down on my GME stocks today, and I have no doubt these tickers are just the warm-up act for the big show. There are six new tickers firing tomorrow from my top 140, down from 15 in my top 140 today. Still a lot more than usual though, and I'm exciting to see what happens!
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*Data Dictionary*
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- Delta Neutral: price that creates a total market delta of 0 across all GME options (all expiration dates) for a given date. General observation is it acts like a theoretical floor (although the price can go lower, as seen in February). My theory is that as the underlying approaches the delta neutral, call options go on sale. As people buy call options, MM have to buy the stocks which increases the price. Most stocks like to hang out above the delta neutral, some dip below and create pressure that can shoot them back over the delta neutral (like what happened in February), and some like to hang out below (like the VIX).
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- Gamma Neutral: price that creates a total market gamma of 0 across all GME options (all expiration dates) for a given date. General observation is it acts like support/resistance between the delta neutral and the underlying, and typically bounces around between the two prices for most plan (like we have seen with GME since April). It also goes crazy in periods of high volatility (as you can see by the infinite spikes).
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- Max Pain: price that creates largest loss for option buyers and largest gain for option sellers. This is a controversial topic because underlying prices can drift towards this point. There are typically large areas around the max pain that doesn't make a lot of difference to the profits for option buyer/sellers. It can be used to help gauge where the equilibrium of the options data is, but there is often a wide range around this price point that does not meaningfully affect MM profits.
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Disclaimer: I'm just a person that likes to play with options data and builds models to trade for a hobby. I have no experience trading professionally or offering any advice to anyone. Nothing is certain in trading. It's all probabilities and what increases/decreases your chance at a profit. This is just one indicator for one type of price movement, and there are many other indicators that can help you make investment decisions.
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6/6/2021 Gamma Update - Review of Gamma Maximums
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================================================
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| Author | Source |
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| :-------------: |:-------------:|
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| [u/yelyah2](https://www.reddit.com/user/yelyah2/) | [Reddit](https://www.reddit.com/r/Superstonk/comments/ntw1h1/662021_gamma_update_review_of_gamma_maximums/) |
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---
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[Education 👨🏫 | Data 🔢](https://www.reddit.com/r/Superstonk/search?q=flair_name%3A%22Education%20%F0%9F%91%A8%E2%80%8D%F0%9F%8F%AB%20%7C%20Data%20%F0%9F%94%A2%22&restrict_sr=1)
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TLDR: Potential new indicator - Gamma Maximum prices could identify potential ceilings for an underlying price, and a threshold to catapult the stock upwards if it can break through.
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Few Quick Words
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As my posts have recently gained some attention, thought I'd like say a few quick things before digging in:
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- I use raw options data from [historicaloptiondata.com](https://historicaloptiondata.com/), write my own algos, and these are just Excel graphs I made.
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- I have a few motivations for sharing this information:
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- Give back to this community. It's awesome, and has given me so much knowledge already.
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- Get feedback and suggestions. I do this as a hobby. I'm not a professional, and this is a pool of very intelligent people who have a lot of good ideas. This post is dedicated to one suggestion I received this last week, and was excited to dig into. I appreciate all your comments and suggestions.
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- Just be kind if you see something you don't agree with. I'd love an honest discourse!
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- I try to read/reply to all your comments, messages and chats. If I don't respond and you wanted a chat, just bug me again. Like everyone, I have a lot going on in life, but this is important to me.
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- I'm giving away a lot of my sauce, but I choose to keep some of my sauce secret. Hoping you can understand if I don't give away all secrets of what I do with trading this model.
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Recap
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My work is built on the idea that the market is largely unpredictable, but one particular kind of behavior is certain - hedgies like to hedge. It's written into their algorithms. Specifically, they like to delta hedge and gamma hedge. This work tries to profit on this one particular type of buying/selling behavior. I have a little data dictionary at the bottom if you need a refresher on terminology.
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Usual Graph Update
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Here's the graph you're used to seeing, and it includes the Close Price (green), delta neutral (blue), gamma neutral (orange) and max pain (blue).
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[](https://preview.redd.it/4lrpvevj5p371.png?width=910&format=png&auto=webp&s=7d8a66d7133074756b822614a74b5389553390e3)
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GME 12/3/2020 - 6/4/2021
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And on a log-based 10 scale:
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[](https://preview.redd.it/w8hji3wc5p371.png?width=910&format=png&auto=webp&s=e6f2d7ff15bb04826059d30df5e473bef9998ff7)
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GME 12/3/2020 - 6/4/2021 - Log Base 10 Scale
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Some people are expecting another drop as the GME price climbs up. The Delta Neutral was at $164 on Friday, and I am projecting that it will climb to $168 by tomorrow, so if the price does dump, don't panic!
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Gamma Maximum
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As I said, I try to read/reply to all your comments and appreciate all feedback/ideas. For this post, I want to highlight one idea by [u/pennyether](https://www.reddit.com/u/pennyether/):
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*"I have a hunch that the price point that has "peak gamma" is more predictive than the point that has "zero gamma". I would be very interested to "peak gamma price point" plotted with the other values.*
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*I think "zero gamma" is overall just indicative of call/put ratio, and how far out they are. It's more of a measurement of "how much are people gambling?".*
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*"Peak Gamma" acts more like magnet in some respects. It's easier to move the price around through price points of high gamma (since each buy or sell is magnified by delta hedging). So if you're just below the peak, buying will push you up slightly more than selling will push you down.*
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Before I show you GME, I wanted to show you the Amazon graph with the "Max Gamma", in a nice red crayon color, and represents underlying price that would achieve the maximum total gamma for the day. I picked Amazon because it's a stock that behaves really well, it has some of the highest underlying equity and options volume on the stock market.
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[](https://preview.redd.it/rtcns36a7p371.png?width=910&format=png&auto=webp&s=43fa5f0686002248a5e11f018a4eaf02c096ae87)
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AMZN 12/1/2020 - 6/4/2021
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A couple quick comments:
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- For Amazon, it does seem like the gamma maximum could be acting like a magnet, as [u/pennyether](https://www.reddit.com/u/pennyether/) suggested.
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- It also seems to act like a ceiling for Amazon on a couple points
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So with that here's the GME graph, in all its madness:
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[](https://preview.redd.it/tamz8rn28p371.png?width=910&format=png&auto=webp&s=ead72bace85cb8bc461acf3292186c10ee5c5274)
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GME 12/3/2020 - 6/4/2021
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I also zoomed in so you could see the run-up to the January squeeze:
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[](https://preview.redd.it/3a3gy4kb8p371.png?width=910&format=png&auto=webp&s=78f250da0d58caa3a196a6e75f48ad2f9f31604b)
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GME 12/3/2020 - 1/24/2021
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I'm really interested to hear about what you see here, and what you think the maximum gamma could represent. I have a few thoughts/observations:
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- It does seem like the gamma max could act like a ceiling, as I showed with Amazon
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- but if the price breaks through the gamma maximum barrier, then it seems like it gives it the power to accelerate the underlying price upwards
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- If so, does that mean the ceiling tomorrow is ~$280 that we have to break through to get to the next level? Maybe? It definitely seems like the latest battles have been centered around $280. Here's hoping we can break through it!
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Just for fun, here's a logarithmic scale showing the maximum gamma from the January squeeze. As you can see, the gamma maximum would have been $12,270,857,810,209,300,000,000,000,000,000 on 1/28/2021.
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[](https://preview.redd.it/kxbmw9gq5l371.png?width=910&format=png&auto=webp&s=4b2f236f63e054d5cb07ccd5d7901929ca008c31)
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Do I think that was really the ceiling? No.... not really... but I have a feeling some will say it's the new "floor" :) I'm guessing it's an infinite glitch as the optimizer tries to find a solution (I know you love that "g" word...).
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Ok that's it for today, see you out there tomorrow! Keep your ideas coming! I love looking at this stuff!!
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*Data Dictionary*
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||||
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||||
- Delta Neutral: price that creates a total market delta of 0 across all GME options (all expiration dates) for a given date. General observation is it acts like a theoretical floor (although the price can go lower, as seen in February). My theory is that as the underlying approaches the delta neutral, call options go on sale. As people buy call options, MM have to buy the stocks which increases the price. Most stocks like to hang out above the delta neutral, some dip below and create pressure that can shoot them back over the delta neutral (like what happened in February), and some like to hang out below (like the VIX).
|
||||
|
||||
- Gamma Neutral: price that creates a total market gamma of 0 across all GME options (all expiration dates) for a given date. General observation is it acts like support/resistance between the delta neutral and the underlying, and typically bounces around between the two prices for most plan (like we have seen with GME since April). It also goes crazy in periods of high volatility (as you can see by the infinite spikes).
|
||||
|
||||
- Max Pain: price that creates largest loss for option buyers and largest gain for option sellers. This is a controversial topic because underlying prices can drift towards this point. There are typically large areas around the max pain that doesn't make a lot of difference to the profits for option buyer/sellers. It can be used to help gauge where the equilibrium of the options data is, but there is often a wide range around this price point that does not meaningfully affect MM profits.
|
||||
|
||||
Disclaimer: I'm just a person that likes to play with options data and builds models to trade for a hobby. I have no experience trading professionally or offering any advice to anyone. Nothing is certain in trading. It's all probabilities and what increases/decreases your chance at a profit. This is just one indicator for one type of price movement, and there are many other indicators that can help you make investment decisions.
|
||||
@ -0,0 +1,72 @@
|
||||
6/8 Delta Neutral Update - Flash Crash Preparedness Plan
|
||||
========================================================
|
||||
|
||||
| Author | Source |
|
||||
| :-------------: |:-------------:|
|
||||
| [u/yelyah2](https://www.reddit.com/user/yelyah2/) | [Reddit](https://www.reddit.com/r/Superstonk/comments/nvl0sy/68_delta_neutral_update_flash_crash_preparedness/) |
|
||||
|
||||
---
|
||||
|
||||
[Education 👨🏫 | Data 🔢](https://www.reddit.com/r/Superstonk/search?q=flair_name%3A%22Education%20%F0%9F%91%A8%E2%80%8D%F0%9F%8F%AB%20%7C%20Data%20%F0%9F%94%A2%22&restrict_sr=1)
|
||||
|
||||
TLDR: If there is a flash crash tomorrow, don't panic. Expect for it to bounce off the $160 price point.
|
||||
|
||||
Edit: Added the Maximum Gamma point to the graph below.
|
||||
|
||||
Recap
|
||||
|
||||
My work is built on the idea that the market is largely unpredictable, but one particular kind of behavior is certain - hedgies like to hedge. It's written into their algorithms. Specifically, they like to delta hedge and gamma hedge. This work tries to profit on this one particular type of buying/selling behavior. I have a little data dictionary at the bottom if you need a refresher on terminology.
|
||||
|
||||
This post is mostly an update to the delta neutral (underlying price where the total market delta is zero). My general theory is that as the underlying approaches the delta neutral, the call options have a flash sale. As people buy up the call options, MM have to buy the stocks, which shoots the price back up.
|
||||
|
||||
Usual Graph Update
|
||||
|
||||
Here's the graph you're used to seeing, and it includes the Close Price (green), delta neutral (blue), gamma neutral (orange), and gamma maximum (red)
|
||||
|
||||
[](https://preview.redd.it/fefq4x4a16471.png?width=911&format=png&auto=webp&s=9834b4d8bb54e803a45be68746d35629ce15504d)
|
||||
|
||||
GME 1/4/2021 - 6/8/2021
|
||||
|
||||
[](https://preview.redd.it/8o5n1n5z16471.png?width=911&format=png&auto=webp&s=a6d4979f5cbd45d5a74b88a9c68ab0ac0896003d)
|
||||
|
||||
GME 1/4/2021 - 6/8/2021 - Log Based 10 Scale
|
||||
|
||||
Few notes:
|
||||
|
||||
- She's moving on up!!
|
||||
|
||||
- Delta Discussion:
|
||||
|
||||
- The delta neutral today is $157.04, and I'm projecting it will be $159.70 tomorrow. That means if there's a flash crash tomorrow, don't panic, it will probably bounce off that point like it has in the past.
|
||||
|
||||
- If you're new to my posts, I started posting when the price was dropping on 5/10. I wanted to reassure everyone that the price would probably bounce off the $143 mark, then warned everyone that it may bounce off the $135 mark the next day. She's been going up ever since! Links to old posts if you're interested:
|
||||
|
||||
- [5/10 Update](https://www.reddit.com/r/Superstonk/comments/n9cutk/gme_bouncing_off_delta_neutral_price_today/)
|
||||
|
||||
- [5/11 Update](https://www.reddit.com/r/Superstonk/comments/na952e/gme_delta_neutral_price_update/?utm_source=share&utm_medium=web2x&context=3)
|
||||
|
||||
- If the price drops below the delta neutral price, then pressure starts to build-up. If the delta neutral doesn't drop with the price, then the underlying price usually bounces back over the delta neutral, like what you can see in February.
|
||||
|
||||
- Note this is mostly how I trade on my model. I watch for equities that drop below the delta neutral. The other one I trade on is gamma spikes...
|
||||
|
||||
- Gamma Discussion:
|
||||
|
||||
- Added the maximum gamma price point to the graph, which is currently sitting at $301.
|
||||
|
||||
- See my last update for a discussion on this new indicator: [Maximum Gamma Indicator](https://www.reddit.com/r/Superstonk/comments/ntw1h1/662021_gamma_update_review_of_gamma_maximums/)
|
||||
|
||||
- It seems like these significant spikes run along side the gamma maximums price points (see the January/March squeezes), and we're currently in one of these runs alongside the underlying price with the maximum gamma.
|
||||
|
||||
- No gamma spikes today for GME, but that's ok, I can feel they are coming!
|
||||
|
||||
I hope we all have an easy day tomorrow with no crazy turbulence/crashes. See you out there tomorrow!
|
||||
|
||||
*Data Dictionary*
|
||||
|
||||
- Delta Neutral: price that creates a total market delta of 0 across all GME options (all expiration dates) for a given date. General observation is it acts like a theoretical floor (although the price can go lower, as seen in February). My theory is that as the underlying approaches the delta neutral, call options go on sale. As people buy call options, MM have to buy the stocks which increases the price. Most stocks like to hang out above the delta neutral, some dip below and create pressure that can shoot them back over the delta neutral (like what happened in February), and some like to hang out below (like the VIX).
|
||||
|
||||
- Gamma Neutral: price that creates a total market gamma of 0 across all GME options (all expiration dates) for a given date. General observation is it acts like support/resistance between the delta neutral and the underlying, and typically bounces around between the two prices for most plan (like we have seen with GME since April). It also goes crazy in periods of high volatility (as you can see by the infinite spikes).
|
||||
|
||||
- Gamma Maximum: Underlying price that results in the highest level of total market gamma. This is a new indicator, suggested by another redditor, pennyether. This price point seems to act as a ceiling, but then an accelerant if the price can break through this barrier.
|
||||
|
||||
Disclaimer: I'm just a person that likes to play with options data and builds models to trade for a hobby. I have no experience trading professionally or offering any advice to anyone. Nothing is certain in trading. It's all probabilities and what increases/decreases your chance at a profit. This is just one indicator for one type of price movement, and there are many other indicators that can help you make investment decisions.
|
||||
@ -0,0 +1,60 @@
|
||||
Delta Neutral Update - $176 Floor Today
|
||||
=======================================
|
||||
|
||||
| Author | Source |
|
||||
| :-------------: |:-------------:|
|
||||
| [u/yelyah2](https://www.reddit.com/user/yelyah2/) | [Reddit](https://www.reddit.com/r/Superstonk/comments/nwrzba/delta_neutral_update_176_floor_today/) |
|
||||
|
||||
---
|
||||
|
||||
[Education 👨🏫 | Data 🔢](https://www.reddit.com/r/Superstonk/search?q=flair_name%3A%22Education%20%F0%9F%91%A8%E2%80%8D%F0%9F%8F%AB%20%7C%20Data%20%F0%9F%94%A2%22&restrict_sr=1)
|
||||
|
||||
TLDR: If you believe in my delta neutral theory, the current floor for this crash is $176.
|
||||
|
||||
There are a lot of very valid theories out there on the floor to this crash, and here's mine that has worked pretty well in the past.
|
||||
|
||||
Recap
|
||||
|
||||
My work is built on the idea that the market is largely unpredictable, but one particular kind of behavior is certain - hedgies like to hedge. It's written into their algorithms. Specifically, they like to delta hedge and gamma hedge. This work tries to profit on this one particular type of buying/selling behavior. I have a little data dictionary at the bottom if you need a refresher on terminology.
|
||||
|
||||
This post is mostly an update to the delta neutral (underlying price where the total market delta is zero). My general theory is that as the underlying approaches the delta neutral a few things happen:
|
||||
|
||||
- There is a large influx of call option purchases, because:
|
||||
|
||||
- The call prices get less expensive as the underlying price approaches the delta neutral
|
||||
|
||||
- Stock prices usually rebound/revert back to the mean after large crashes, so the price often rebounds anyways.
|
||||
|
||||
- With the large influx of call volume, market makers have to start buying stocks to delta hedge, which turns the price back around and creates an upward trajectory.
|
||||
|
||||
- Historically, you can see that GME often bounces off the delta neutral prices during drops. The exception is the February drop. When the underlying goes below the delta neutral price, a lot of pressure builds up that results in a significant increase when that pressure is released.
|
||||
|
||||
- Note that this is how I trade my model. I look for equities that fall below the delta neutral.
|
||||
|
||||
- If you're interested in prior posts that helped reassure during the dips, here you go:
|
||||
|
||||
- [5/10 Post](https://www.reddit.com/r/Superstonk/comments/n9cutk/gme_bouncing_off_delta_neutral_price_today/)
|
||||
|
||||
- [5/11 Post](https://www.reddit.com/r/Superstonk/comments/na952e/gme_delta_neutral_price_update/)
|
||||
|
||||
Graph Update
|
||||
|
||||
Here's the graph you're used to seeing, and it includes the Close Price (green), delta neutral (blue), gamma neutral (orange), and max pain (light blue)
|
||||
|
||||
[](https://preview.redd.it/6kfa4wojtg471.png?width=910&format=png&auto=webp&s=c43b15b11696f544540f536b68020061204961ff)
|
||||
|
||||
GME 1/4/2021 - 6/10/2021
|
||||
|
||||
The delta neutral through 6/9 was $173, and I am projecting a delta neutral today of $176.
|
||||
|
||||
Don't panic. Just buy the dip.
|
||||
|
||||
*Data Dictionary*
|
||||
|
||||
- Delta Neutral: price that creates a total market delta of 0 across all GME options (all expiration dates) for a given date. General observation is it acts like a theoretical floor (although the price can go lower, as seen in February). My theory is that as the underlying approaches the delta neutral, call options go on sale. As people buy call options, MM have to buy the stocks which increases the price. Most stocks like to hang out above the delta neutral, some dip below and create pressure that can shoot them back over the delta neutral (like what happened in February), and some like to hang out below (like the VIX).
|
||||
|
||||
- Gamma Neutral: price that creates a total market gamma of 0 across all GME options (all expiration dates) for a given date. General observation is it acts like support/resistance between the delta neutral and the underlying, and typically bounces around between the two prices for most plan (like we have seen with GME since April). It also goes crazy in periods of high volatility (as you can see by the infinite spikes).
|
||||
|
||||
- Max Pain: price that creates largest loss for option buyers and largest gain for option sellers. This is a controversial topic because underlying prices can drift towards this point. There are typically large areas around the max pain that doesn't make a lot of difference to the profits for option buyer/sellers. It can be used to help gauge where the equilibrium of the options data is, but there is often a wide range around this price point that does not meaningfully affect MM profits.
|
||||
|
||||
Disclaimer: I'm just a person that likes to play with options data and builds models to trade for a hobby. I have no experience trading professionally or offering any advice to anyone. Nothing is certain in trading. It's all probabilities and what increases/decreases your chance at a profit. This is just one indicator for one type of price movement, and there are many other indicators that can help you make investment decisions.
|
||||
@ -0,0 +1,56 @@
|
||||
Delta Neutral Update - IF the price still drops today...
|
||||
========================================================
|
||||
|
||||
| Author | Source |
|
||||
| :-------------: |:-------------:|
|
||||
| [u/yelyah2](https://www.reddit.com/user/yelyah2/) | [Reddit](https://www.reddit.com/r/Superstonk/comments/nxigxe/delta_neutral_update_if_the_price_still_drops/) |
|
||||
|
||||
---
|
||||
|
||||
[Education 👨🏫 | Data 🔢](https://www.reddit.com/r/Superstonk/search?q=flair_name%3A%22Education%20%F0%9F%91%A8%E2%80%8D%F0%9F%8F%AB%20%7C%20Data%20%F0%9F%94%A2%22&restrict_sr=1)
|
||||
|
||||
TLDR: The price can still drop today, and IF it does, my prediction is it COULD drop as low as the $175 delta neutral floor before rebounding. Note that this is not a prediction that it will drop. I'm just trying to give reassurance to anyone worried about a significant drop.
|
||||
|
||||
Here's the graph you're used to seeing, and it includes the Close Price (green), delta neutral (blue), gamma neutral (orange), and max pain (light blue) .
|
||||
|
||||
[](https://preview.redd.it/abmgtqgpkn471.png?width=910&format=png&auto=webp&s=611cc53e7d49fb8bde10678b1193a26eb5be558d)
|
||||
|
||||
1/4/2021 - 6/10/2021
|
||||
|
||||
The Delta Neutral was at $172 through EOD yesterday, and I'm projecting a Delta neutral of $175 today.
|
||||
|
||||
Don't panic. Just buy the dip.
|
||||
|
||||
Recap
|
||||
|
||||
My work is built on the idea that the market is largely unpredictable, but one particular kind of behavior is certain - hedgies gonna hedge. It's written into their algorithms. Specifically, they like to delta hedge and gamma hedge. This work tries to profit on this one particular type of buying/selling behavior. I have a little data dictionary at the bottom if you need a refresher on terminology.
|
||||
|
||||
This post is mostly an update to the delta neutral (underlying price where the total market delta is zero). My general theory is that as the underlying approaches the delta neutral a few things happen:
|
||||
|
||||
- There is a large influx of call option purchases, because:
|
||||
|
||||
- The call prices get less expensive as the underlying price approaches the delta neutral
|
||||
|
||||
- Stock prices usually rebound/revert back to the mean after large crashes, so the price often rebounds anyways.
|
||||
|
||||
- With the large influx of call volume, market makers have to start buying stocks to delta hedge, which turns the price back around and creates an upward trajectory.
|
||||
|
||||
- Historically, you can see that GME often bounces off the delta neutral prices during drops. The exception is the February drop. When the underlying goes below the delta neutral price, a lot of pressure builds up that results in a significant increase when that pressure is released.
|
||||
|
||||
- Note that this is how I trade my model. I look for equities that fall below the delta neutral.
|
||||
|
||||
- If you're interested in prior posts that helped reassure during the dips, here you go:
|
||||
|
||||
- [5/10 Post](https://www.reddit.com/r/Superstonk/comments/n9cutk/gme_bouncing_off_delta_neutral_price_today/)
|
||||
|
||||
- [5/11 Post](https://www.reddit.com/r/Superstonk/comments/na952e/gme_delta_neutral_price_update/)
|
||||
|
||||
*Data Dictionary*
|
||||
|
||||
- Delta Neutral: price that creates a total market delta of 0 across all GME options (all expiration dates) for a given date. General observation is it acts like a theoretical floor (although the price can go lower, as seen in February). My theory is that as the underlying approaches the delta neutral, call options go on sale. As people buy call options, MM have to buy the stocks which increases the price. Most stocks like to hang out above the delta neutral, some dip below and create pressure that can shoot them back over the delta neutral (like what happened in February), and some like to hang out below (like the VIX).
|
||||
|
||||
- Gamma Neutral: price that creates a total market gamma of 0 across all GME options (all expiration dates) for a given date. General observation is it acts like support/resistance between the delta neutral and the underlying, and typically bounces around between the two prices for most plan (like we have seen with GME since April). It also goes crazy in periods of high volatility (as you can see by the infinite spikes).
|
||||
|
||||
- Max Pain: price that creates largest loss for option buyers and largest gain for option sellers. This is a controversial topic because underlying prices can drift towards this point. There are typically large areas around the max pain that doesn't make a lot of difference to the profits for option buyer/sellers. It can be used to help gauge where the equilibrium of the options data is, but there is often a wide range around this price point that does not meaningfully affect MM profits.
|
||||
|
||||
Disclaimer: I'm just a person that likes to play with options data and builds models to trade for a hobby. I have no experience trading professionally or offering any advice to anyone. Nothing is certain in trading. It's all probabilities and what increases/decreases your chance at a profit. This is just one indicator for one type of price movement, and there are many other indicators that can help you make investment decisions.
|
||||
@ -0,0 +1,66 @@
|
||||
Delta/Gamma Update & The Role of a Critic
|
||||
=========================================
|
||||
|
||||
| Author | Source |
|
||||
| :-------------: |:-------------:|
|
||||
| [u/yelyah2](https://www.reddit.com/user/yelyah2/) | [Reddit](https://www.reddit.com/r/Superstonk/comments/nzyji4/deltagamma_update_the_role_of_a_critic/) |
|
||||
|
||||
---
|
||||
|
||||
[Education 👨🏫 | Data 🔢](https://www.reddit.com/r/Superstonk/search?q=flair_name%3A%22Education%20%F0%9F%91%A8%E2%80%8D%F0%9F%8F%AB%20%7C%20Data%20%F0%9F%94%A2%22&restrict_sr=1)
|
||||
|
||||
*Graph Update*
|
||||
|
||||
Here's the graph you're used to seeing, and it includes the Close Price (green), delta neutral (blue), gamma neutral (orange), and max pain (light blue) .
|
||||
|
||||
[](https://preview.redd.it/97mi0v0sxa571.png?width=910&format=png&auto=webp&s=c3ca835309cae2a0f9c3a22534de8d98f3f94cec)
|
||||
|
||||
GME 1/4/2021 - 6/14/2021 - Log Base 10 Scale
|
||||
|
||||
I'm really excited to share that I bought a massive options database, with all optionable stocks going back to 2007! I'm in the process of transitioning my code over to this new vendor, making some enhancements to the model I've been wanting to do, and running the algo. I'm Excited to see how my indicators work on prior short squeezes (like the VW squeeze). I look forward to sharing my research!
|
||||
|
||||
My work is built on the idea that the market is largely unpredictable, but one particular kind of behavior is certain - hedgies gonna hedge. It's written into their algorithms. Specifically, they like to delta hedge and gamma hedge. This work tries to profit on this one particular type of buying/selling behavior. I have a little data dictionary at the bottom if you need a refresher on terminology.
|
||||
|
||||
There isn't a lot to note today for these specific indicators, but wanted to give you an updated. Instead, I just have something to say to support my amazing, fellow DD/TA friends that are putting out incredible new ideas.
|
||||
|
||||
*Quick Chat*
|
||||
|
||||
I think like we may need to have a little chat. I say it at the bottom of each post, but these indicators just help give help identifying if the probability of a certain event occurring has increased. None of my fellow DD/TA'ers are giving you prophecies. There are too many variables to incorporate, and the human element, which makes it impossible to tell you any price movement is 100% certain.
|
||||
|
||||
Similarly, sports analysts put a lot of work incorporating all kinds of factors into the chance a certain team winning a game, and incorporate all kinds of factors (weather, injuries, home field advantage, etc.). However, any team can win on Any Given Sunday.
|
||||
|
||||
For example, every analyst predicted the 7-9 Seahawks would lose to the 11-5 Saints in the 2010 NFC Wild Card Game, but none of them realized the secret was that Marshawn Lynch ate his special skittles, and resulted in Beast Quake (best running touch down ever).
|
||||
|
||||
[](https://preview.redd.it/akg7mts0za571.png?width=1000&format=png&auto=webp&s=c3ea9c4b163e260867e450596d9b99786124aa78)
|
||||
|
||||
2010 Beast Quake
|
||||
|
||||
Now I could start predicting with some certainty that when Marshawn Lynch ate his special skittles, the Seahawks would win. That would work with some certainty, and my success rate in using that indicator was higher than with other factors (or maybe in addition to those other factors).
|
||||
|
||||
Now say that I knew Marshawn Lynch had extra special Skittles before Super Bowl XLIX, so I knew the chances were much higher that the Seahawks would win, and Marshawn Lynch was ready to run in the game winning touchdown.
|
||||
|
||||
HOWEVER, no one could have expected that fricking PETE CARROL WOULD DECIDE TO PASS IT INSTEAD OF GIVING IT TO SKITTLE-MUCHING-MARSHAWN AT THE ENDZONE FOR THE GAME-WINNING PLAY.
|
||||
|
||||
[](https://preview.redd.it/ueou8kpa0b571.png?width=1024&format=png&auto=webp&s=c3036caf38c54c56a7c45690aade6a312773e624)
|
||||
|
||||
Super Bowl XLIX - Heartbreak
|
||||
|
||||
So does that mean I was wrong about using special Skittles as a helpful indicator for a Seahawks win? No! Because the human-element (i.e. stupid Seahawks coaches) adds unpredictability. I won't ditch that indicator, but will work to refine that indicator or use it in conjunction with others.
|
||||
|
||||
We're all working to improve and become more accurate, so be kind if you think a DD/TA wasn't perfect for the day. Ape no fight Ape. I support every one of my incredibly smart, new, GME friends that are putting out new ideas.
|
||||
|
||||
So I will just leave you with some Ratatouille to think on as you read through posts this evening:
|
||||
|
||||
[](https://preview.redd.it/cwb4c7fb1b571.png?width=530&format=png&auto=webp&s=d028013629530a4e1ed0f585bb56677e600cfae1)
|
||||
|
||||
Ratatouille - The Role of a Critic
|
||||
|
||||
*Data Dictionary*
|
||||
|
||||
- Delta Neutral: price that creates a total market delta of 0 across all GME options (all expiration dates) for a given date. General observation is it acts like a theoretical floor (although the price can go lower, as seen in February). My theory is that as the underlying approaches the delta neutral, call options go on sale. As people buy call options, MM have to buy the stocks which increases the price. Most stocks like to hang out above the delta neutral, some dip below and create pressure that can shoot them back over the delta neutral (like what happened in February), and some like to hang out below (like the VIX).
|
||||
|
||||
- Gamma Neutral: price that creates a total market gamma of 0 across all GME options (all expiration dates) for a given date. General observation is it acts like support/resistance between the delta neutral and the underlying, and typically bounces around between the two prices for most plan (like we have seen with GME since April). It also goes crazy in periods of high volatility (as you can see by the infinite spikes).
|
||||
|
||||
- Max Pain: price that creates largest loss for option buyers and largest gain for option sellers. This is a controversial topic because underlying prices can drift towards this point. There are typically large areas around the max pain that doesn't make a lot of difference to the profits for option buyer/sellers. It can be used to help gauge where the equilibrium of the options data is, but there is often a wide range around this price point that does not meaningfully affect MM profits.
|
||||
|
||||
Disclaimer: I'm just a person that likes to play with options data and builds models to trade for a hobby. I have no experience trading professionally or offering any advice to anyone. Nothing is certain in trading. It's all probabilities and what increases/decreases your chance at a profit. This is just one indicator for one type of price movement, and there are many other indicators that can help you make investment decisions.
|
||||
@ -0,0 +1,200 @@
|
||||
Delta Neutral Update: Any meaningful underlying price increase today will significantly increase our chances at a squeeze in the near future.
|
||||
=============================================================================================================================================
|
||||
|
||||
| Author | Source |
|
||||
| :-------------: |:-------------:|
|
||||
| [u/yelyah2](https://www.reddit.com/user/yelyah2/) | [Reddit](https://www.reddit.com/r/Superstonk/comments/o9qb4n/delta_neutral_update_any_meaningful_underlying/) |
|
||||
|
||||
---
|
||||
|
||||
[DD 👨🔬](https://www.reddit.com/r/Superstonk/search?q=flair_name%3A%22DD%20%F0%9F%91%A8%E2%80%8D%F0%9F%94%AC%22&restrict_sr=1)
|
||||
|
||||
TLDR: any meaningful increase today (>2%) will significantly increase the chances of a squeeze in our near future.
|
||||
|
||||
Edit1: We obviously finished at ~1.8% today instead of 2%. Green is green and any increase is good (like always). Think of it like we were playing in a special bonus round today that would've quadruple our daily GME points, and we probably didn't get those bonus point. Still a good day! I'm excited to process my options data dump when I get it in an hour or so, and will be sure to share the results.
|
||||
|
||||
Edit2: AH price movements still definitely help! My options data dumps are near end of day (~15 min before close), so I won't see the impact of AH movement when I process tonight, but it's all still good!
|
||||
|
||||
Edit3: Just to be clear, I was not predicting a >2% increase today. My sensitivity testing goes from 2% to 10%, so I was saying that my sensitivity tests show even a 2% increase will get some awesome bonus delta today (more than usual). Since we were at ~1.8% today, that doesn't mean we get nothing. I'm sure we will still get bonus delta, but my sensitivity tests just didn't go below 2%, so I couldn't tell you what was it was. We're good though! It was a good day!
|
||||
|
||||
I apologize for my absence. I've been on vacation for the first time since 2019! California was beautiful. Definitely making me think about a move :)
|
||||
|
||||
Since it's been a couple of weeks, I'll do a full refresher below.
|
||||
|
||||
*Background*
|
||||
|
||||
My work is built on the idea that the market is largely unpredictable, but one particular kind of behavior is certain - hedgies gonna hedge. It's written into their algorithms. Specifically, they like to delta hedge and gamma hedge. This work tries to profit on this one particular type of buying/selling behavior.
|
||||
|
||||
[](https://preview.redd.it/ck93r8xvg1871.png?width=168&format=png&auto=webp&s=ab98f88b94e4fa0198174029e71061abe2891686)
|
||||
|
||||
Hedgie doing its Hedgin'
|
||||
|
||||
There is a new methodology/assumptions section at the bottom that gives my method in full detail. This section gives a high-level of the key pieces of the analysis described in this post.
|
||||
|
||||
Delta
|
||||
|
||||
The Delta of an option represents the expected change to an option's price based on a $1 change in the security's underlying price. For example, if the GME underlying price is at $100,000,000 and a GME $102,000,000 strike call has a delta of 0.2, then that call option price will increase by $0.2 if the GME underlying price moves up to $100,000,001. Note that the price is also affected by gamma so will actually be higher than the $0.2 price increase estimated by delta, which will be covered later.
|
||||
|
||||
[](https://preview.redd.it/ugpgf1wjg1871.png?width=987&format=png&auto=webp&s=8ecf759c7f1119d70b9f5765674590f866168fb5)
|
||||
|
||||
Call versus Put Delta by Strike Price for an Underlying @ $100
|
||||
|
||||
Delta hedging is a trading strategy employed by market makers (MM's) to minimalize the directional risk associated with price movements in the underlying security. Traditionally, you can think of a MM buying 20 (0.2 x 100) stocks of the underlying security if the price increases by $1 (using the example above). However, it's important to note that hedge funds often use other derivatives to hedge, not just buying/selling stocks because it requires less capital to do so. However, these indicators can be used as a directional proxy for some of the MM behavior as the underlying price increases/decreases.
|
||||
|
||||
The total market delta share equivalent represents the sum of delta x OI across all strikes/expiration prices in a given trading day. I will say it one more time, hedge funds are not actually holding this number of shares on a given day to hedge. They often hedge with other market derivatives. However, it can give us an indicator for hedge funds buying/selling underlying equity relativities.
|
||||
|
||||
Delta Neutral
|
||||
|
||||
The Delta Neutral price that creates a total market delta of 0 across all GME options (all expiration dates) for a given date. It can also be though of as the intersection of a supply/demand curve for hedged stocks. See the "Methodology and Assumptions" section for full detail on how I develop this indicator.
|
||||
|
||||
Notes below for general options on how the delta neutral interacts with the underlying price:
|
||||
|
||||
- There is a large influx of call option purchases, because:
|
||||
|
||||
- The call prices get less expensive as the underlying price approaches the delta neutral
|
||||
|
||||
- Stock prices usually rebound/revert back to the mean after large crashes, so the price often rebounds anyways.
|
||||
|
||||
- With the large influx of call volume, market makers have to start buying stocks to delta hedge, which turns the price back around and creates an upward trajectory.
|
||||
|
||||
- Important note that hedgies often hedge with derivatives instead of buying stocks, so there isn't a 1-to-1 relationship between the delta and shares bought/sold by hedge funds.
|
||||
|
||||
- Historically, you can see that GME often bounces off the delta neutral prices during drops. The exception is the February drop. When the underlying goes below the delta neutral price, a lot of pressure builds up that results in a significant increase when that pressure is released.
|
||||
|
||||
- Note this is the primary way that I trade my model. I made a scanner that looks for equities that fall below the delta neutral.
|
||||
|
||||
Gamma
|
||||
|
||||
The Gamma of an option represents the rate of change of the Delta of an option with respect to a $1 underlying price movement. From our example above, if the GME underlying price is at $100,000,000 and a GME $102,000,000 strike call has a delta of 0.2 and a gamma of 0.05, then that call option price would actually increase by $0.25 (0.2 + 0.05) if the GME underlying price moves up to $100,000,001.
|
||||
|
||||
[](https://preview.redd.it/14jxduhrk1871.png?width=670&format=png&auto=webp&s=b3d64c2e70ae8961359d1b1c5f708ea70f1ed9c8)
|
||||
|
||||
MM also hedge against gamma risk, but the impact of buying/selling securities to hedge is often much lower than the impact of delta hedging (also remember that they use derivatives to hedge too). However, you are probably familiar with gamma because of the "gamma squeeze" that happened back in January. A gamma squeeze happens when the underlying stock price begins to go up very quickly in a short period of time. This forces more buying activity from rapidly increasing deltas/hedging, which continues to inflate the price.
|
||||
|
||||
Gamma Neutral
|
||||
|
||||
The Gamma Neutral price that creates a total market gamma of 0 across all GME options (all expiration dates) for a given date. See the "Methodology and Assumptions" section for full detail on how I develop this indicator.
|
||||
|
||||
General notes below for observations on how this indicator behaves:
|
||||
|
||||
- It acts like support/resistance between the delta neutral and the underlying, and typically bounces around between the two prices for most symbols (like we have seen with GME since April).
|
||||
|
||||
- It also goes crazy in periods of high volatility, as you can see by the very higher spikes.
|
||||
|
||||
- A gamma spike indicates the presence of POTENTAILLY slippery option market conditions, which COULD lead to a gamma squeeze. There were certainly spikes present back in January, but we had a few one-day false starts this last month.
|
||||
|
||||
- They are often triggered by high price movement in a day, which can lead to continue high growth if underlying volume supports it.
|
||||
|
||||
- Gamma spikes can also be triggered by unusual options purchases during the day. These are the one ones to find, because you can often catch the high increase waves before they actually start.
|
||||
|
||||
- If I'm trading this indicator, I often either wait for a gamma spike to continue for 2 days in a row and supported by increased volume. Otherwise, I invest straight away if I find a gamma spike just based on options movement (i.e. no significant underlying increase yet).
|
||||
|
||||
*Delta/Gamma Neutral Graph*
|
||||
|
||||
Here's the graph you're used to seeing, and it includes the Close Price (green), delta neutral (blue), and gamma neutral (orange), on a log-based 10 scale so you can see those spikes in all their glory.
|
||||
|
||||
[](https://preview.redd.it/3w8in2bxn1871.png?width=910&format=png&auto=webp&s=8ee0e0f575df7fcc96a93eef105b6107024dc69a)
|
||||
|
||||
GME 1/4/2021 - 6/25/2021
|
||||
|
||||
A few things that happened the last two weeks:
|
||||
|
||||
- The delta neutral floor continues to rise (yay!) It's currently at $176.
|
||||
|
||||
- GME likes to hang out between 10% and 30% higher than the delta neutral price if nothing unusual happens, which gives a range of $194 - $230 for the underlying.
|
||||
|
||||
- GME's high is 214% higher than the DN back on 1/27, so certainly able to break higher, but it is hard to break through that resistance.
|
||||
|
||||
- No significant action with gamma since 6/8
|
||||
|
||||
*Total Market Delta*
|
||||
|
||||
The graph below summaries the total market delta share equivalents (dark blue) versus the underlying close price (green). See the "Delta" section above for information on what the total market delta share equivalent amounts represent.
|
||||
|
||||
[](https://preview.redd.it/valw8po1s1871.png?width=909&format=png&auto=webp&s=5241a6231a0d442eb3cfa268e37ea5957827fbf5)
|
||||
|
||||
GME Total Market Delta Share Equivalent versus Underlying Close
|
||||
|
||||
You will notice above that the total market delta increased significantly BEFORE the January and February/March squeezes. This helped to contribute to the buying pressure to push GME upwards.
|
||||
|
||||
The graph below provides a sensitivity test for the total market delta share equivalent (blue) based on +5% (light red) and -5% (dark red) shifts to the underlying price.
|
||||
|
||||
[](https://preview.redd.it/g01npebyr1871.png?width=909&format=png&auto=webp&s=3720955ff7a40a4e03937176115c34e9f736301c)
|
||||
|
||||
+/- 5% Underlying Price Sensitivity Test
|
||||
|
||||
Now you can see that the impact to the total market delta increases significantly BEFORE large changes to the total market delta share equivalent, which happens BEFORE large changes to the underlying price.
|
||||
|
||||
Note that there are also potential for large DECREASES if there is also a potential for large INCREASES. The total market delta sensitivity tests have also been indicating a potential for a large decrease as the market has been dropping the last few weeks.
|
||||
|
||||
For example, back in January:
|
||||
|
||||
- The sensitivity test on 1/8/2021 showed a 5% increase to the underlying on 1/8/2021 ( a Friday) would've increased the total market delta by 91%.
|
||||
|
||||
- On 1/11/2021 (Monday), the price increased by 13%, and the total market delta increased by 305%.
|
||||
|
||||
- The underlying price then increased by 200% between 1/11/2021 to 1/14/2021.
|
||||
|
||||
Now! My sensitivity tests as of 6/25/2021 close showed that a 5% increase today would lead to a 60% increase in the total market delta equivalent! As of writing this, we have already been up > 5% at a high for the day, and currently at a 3% gain. I expect this will lead to a significant increase in the total market delta shares, which will put us well on our way towards another squeezy squeezy lemon peezy.
|
||||
|
||||
[](https://preview.redd.it/leipjjemu1871.png?width=1280&format=png&auto=webp&s=eceb696974c5897f08ffe7b3c51e9d5d936931c3)
|
||||
|
||||
*Methodology and Assumptions*
|
||||
|
||||
I write my own algorithms to produce the results above. The following lists some key methodology and assumptions I use:
|
||||
|
||||
- I rely on daily options summaries produced by <https://www.orats.com/>
|
||||
|
||||
- Their options summaries use "near end of day" snapshots (i.e. 15 minutes before close), because they say its more reliable for producing Greeks. They say the last 15 minutes is not a reliable source for options prices to represent the rest of the market day. Therefore, you may notice
|
||||
|
||||
- I still rely on [www.historicaloptiondata.com](https://www.historicaloptiondata.com/) for my stock information, but working on converting to orats.
|
||||
|
||||
- Note that the Underlying Price in the graphs above is the Close price, not the near end of day price.
|
||||
|
||||
- For the Implied Volatility (IV), I use the following method:
|
||||
|
||||
- Orats produces a smoothed IV that I like, which I use in conjunction with the mid-price call/put IV's to produce a final IV.
|
||||
|
||||
- The orats smoothed IV cleans the quotes, and solves for a residual yield based on the put-call parity formula. This lines up the call and put implied volatilities, to account for estimating hard-to-borrow stocks, or stocks with differing dividend assumptions.
|
||||
|
||||
- Next, the IV curve is smoothed through the strike IV's using cubic splines. This is helpful for producing reasonable IV's in low volume stocks or strike prices.
|
||||
|
||||
- The smoothed IV methodology above produces the same set of IV for both calls and puts. Theoretically, the IV should be the same for both calls/put, because it should represent the estimated volatility of the underlying price for both calls and puts, which wouldn't differ.
|
||||
|
||||
- However practically, the IV never actually just represents the estimated volatility of the underlying. The IV used in the Black-Scholes (B-S) price calculation is usually always higher than the historical volatility, because options sellers attach an IV premium to the raw IV that helps make them money.
|
||||
|
||||
- Because calls can produce infinite losses to options sellers, the IV premium tends to be higher for calls than for puts. I use the following methodology to adjust the orats call/put smoothed IV:
|
||||
|
||||
- I pull the orats options database for each ticker, trade date and expiration date.
|
||||
|
||||
- Calculate the relativities of the raw mid-price call / smoothed IV, and the raw mid-price put / smoothed IV for each strike price.
|
||||
|
||||
- Fill in any missing relativities with the nearest relativity, within its own ticker/trade date/expiration date. This mostly just applies to far OTM strikes.
|
||||
|
||||
- Smooth the relativities using rloess, which is a local regression using weighted linear least squares and a 2nd degree polynomial model. This method assigns zero weight to data outside six mean absolute deviations.
|
||||
|
||||
- Apply the smoothed call/put mid-price relativities to the smoothed orats IV estimates to get the final call/put IV estimates.
|
||||
|
||||
- Using the final call/put IV estimates described above, I calculate my own Greeks. I like this source if you're interested in the formulas: [https://www.macroption.com/option-greeks-excel](https://www.macroption.com/option-greeks-excel/#gamma-in-excel)
|
||||
|
||||
- For the total market delta and total market gamma, I rely on the OI x delta and OI x gamma for each strike price.
|
||||
|
||||
- Note that the delta of a call is usually equal to (1 - put delta), so not adjustment is needed to the delta signs when calculating the total market delta.
|
||||
|
||||
- However, the call/put gammas are both positive based on the B-S calculation. If you're calculating the total gamma for a portfolio, or the total market, you have to add the call gamma and subtract the put gamma.
|
||||
|
||||
- To estimate the delta neutral and the gamma neutral, I have an algorithm that relies on the optimization toolbox in Matlab to identify an underlying price that achieve a total market delta and a total market gamma.
|
||||
|
||||
- For the sensitivity tests, I adjust the underlying price in the snapshot by +/-5%, and run the algorithms as described above, to estimate what the total market delta/gamma would be at the different underlying price.
|
||||
|
||||
- Note that the IV would change with higher/lower prices for the delta/gamma neutral and the sensitivity tests, but the impact is not significant enough to make a meaningful difference and takes significant processing time to apply the IV curves. However, it is an important simplifying assumption to be aware of.
|
||||
|
||||
- Open Interest (OI) is always lagged one day for options summaries. The OCC releases final open interest on a given day, and it represents the OI for the close of the prior day. Therefore, the OI I get in my summaries on 6/28 does not represent the OI as of close on 6/28. It represents the OI as of close on 6/25. If you see a source like Yahoo give live OI throughout the day, they are only estimates, and their algorithm methodology for estimating the OI based on various price/volume movement is a closely guarded secret.
|
||||
|
||||
- Note that I'm currently working on my own algorithm to estimate same-day OI, but I'm not done yet.
|
||||
|
||||
- However, it should be noted that using the prior day OI is a limitation of the data available to me.
|
||||
|
||||
*Disclaimer: I'm just a person that likes to play with options data and builds models to trade for a hobby. I have no experience trading professionally or offering any advice to anyone. Nothing is certain in trading. It's all probabilities and what increases/decreases your chance at a profit. This is just one indicator for one type of price movement, and there are many other indicators that can help you make investment decisions.*
|
||||
|
||||
*I'll do my best to respond to all comments, including the negative ones. I'm happy to have a productive chat about any of my logic. I've gotten a lot of good ideas from posting on this forum, so thank you! However, if I can defend myself in a dark parking lot with nothing but my high heels, I can certainly defend myself against online trolls. So be nice.*
|
||||
@ -0,0 +1,136 @@
|
||||
Delta/Gamma Neutral Update - Hold strong!
|
||||
=========================================
|
||||
|
||||
| Author | Source |
|
||||
| :-------------: |:-------------:|
|
||||
| [u/yelyah2](https://www.reddit.com/user/yelyah2/) | [Reddit](https://www.reddit.com/r/Superstonk/comments/og9pcv/deltagamma_neutral_update_hold_strong/) |
|
||||
|
||||
---
|
||||
|
||||
[DD 👨🔬](https://www.reddit.com/r/Superstonk/search?q=flair_name%3A%22DD%20%F0%9F%91%A8%E2%80%8D%F0%9F%94%AC%22&restrict_sr=1)
|
||||
|
||||
TLDR: This is just a quick update for the Delta Neutral/Gamma Neutral/Gamma Maximum indicators. The DN is currently ~$157, which isn't ideal for red days like we've been having, but GME always bounces back if it does drop. Hold strong!
|
||||
|
||||
*Background*
|
||||
|
||||
My work is built on the idea that the market is largely unpredictable, but one particular kind of behavior is certain - hedgies gonna hedge. It's written into their algorithms. Specifically, they like to delta hedge and gamma hedge. This work tries to profit on this one particular type of buying/selling behavior.
|
||||
|
||||
[](https://preview.redd.it/sk94lr67d0a71.png?width=300&format=png&auto=webp&s=2d69b060bbd94a962f23985309109832a9031764)
|
||||
|
||||
Hedgies Hedgin'
|
||||
|
||||
In general, all stock indicators boil down to two things - reversion to the mean and momentum. Every trader wants to accurately predict these two forces better than other guy, and if you use different indicators than the other guy, that an give you an 'alpha' in trading if it's a better predictor.
|
||||
|
||||
I make a lot of different indicators, but the two primary ones are the Delta Neutral and Gamma Neutral:
|
||||
|
||||
- Delta Neutral (DN) - This helps identify reversion to the mean, and represents the underlying price that would create a total market delta of 0 across all GME options (all expiration dates) for a given date. In general, it acts like a floor to the underlying price, but if the price drops below the delta neutral, then it tends to shoot back up above that line.
|
||||
|
||||
- This is generally how I trade my model. I watch for stocks that drop below the DN, and buy them, expecting for traders to identify that the stock is underpriced and will revert back to a higher level.
|
||||
|
||||
- Gamma Neutral (GN) and Gamma Maximum (GM) - This helps identify momentum. The GN represents the underlying price that would create a total market gamma of 0 across all GME options (all expiration dates) for a given date, whereas the GM represents the underlying price that would create the maximum gamma across the market.
|
||||
|
||||
- In general, a sudden increase in gamma indicates a sharp upward in momentum that continues until that gamma drops.
|
||||
|
||||
- The GM seems to act like a ceiling, but fun things happen when the underlying crossing that threshold!
|
||||
|
||||
This is my own personal 'alpha' that I developed for my own trading purposes, and am sharing with this community because it's given me back so much. This is not financial advice. I'm just a mathematician that likes to play with options data, and I am not a professional trader.
|
||||
|
||||
There is a detailed data dictionary, methodology and assumptions section at the bottom that gives my method in full detail.
|
||||
|
||||
*Delta/Gamma Neutral Graph*
|
||||
|
||||
Here's the graph you're used to seeing, and it includes the Close Price (green), delta neutral (blue), gamma neutral (orange) and gamma maximum (red), on a log-based 10 scale so you can see those spikes in all their glory.
|
||||
|
||||
[](https://preview.redd.it/c01cdyzfb0a71.png?width=910&format=png&auto=webp&s=80f628b1d49d920ef5ceaf49911ea5678c267e52)
|
||||
|
||||
A few things that happened since I last posted:
|
||||
|
||||
- I've been working hard on updates to my model and creating new indicators that I hope to share soon. I know I keep saying that, but research takes time. There are a lot of twists/turns/unexpected results. May post what I have so far soon, and see if the group has any ideas to explain what I'm seeing.
|
||||
|
||||
- I refined my IV methodology, which caused the DN optimization to break during the January squeeze (not surprising), but that's why you see it crash out in January. I'm working on identifying why that's happening.
|
||||
|
||||
- The delta neutral floor is currently holding steady around $157, which obviously isn't ideal during these red days, but just know that GME always bounces back if it does drop.
|
||||
|
||||
- GME likes to hang out between 10% and 30% higher than the delta neutral price if nothing unusual happens, which gives a range of $172 - $204 for the underlying.
|
||||
|
||||
- GME's high is 214% higher than the DN back on 1/27, so certainly able to break higher, but it will see resistance to break higher.
|
||||
|
||||
- No significant action with the GN since 6/8
|
||||
|
||||
- The GM is currently at $247, indicating fun things COULD happen if we can bounce over that point.
|
||||
|
||||
*Methodology and Assumptions*
|
||||
|
||||
Delta Neutral
|
||||
|
||||
The Delta Neutral price that creates a total market delta of 0 across all GME options (all expiration dates) for a given date. It can also be though of as the intersection of a supply/demand curve for hedged stocks. See the "Methodology and Assumptions" section for full detail on how I develop this indicator.
|
||||
|
||||
Notes below for general options on how the delta neutral interacts with the underlying price:
|
||||
|
||||
- There is a large influx of call option purchases, because:
|
||||
|
||||
- The call prices get less expensive as the underlying price approaches the delta neutral
|
||||
|
||||
- Stock prices usually rebound/revert back to the mean after large crashes, so the price often rebounds anyways.
|
||||
|
||||
- With the large influx of call volume, market makers have to start buying stocks to delta hedge, which turns the price back around and creates an upward trajectory.
|
||||
|
||||
- Important note that hedgies often hedge with derivatives instead of buying stocks, so there isn't a 1-to-1 relationship between the delta and shares bought/sold by hedge funds.
|
||||
|
||||
- Historically, you can see that GME often bounces off the delta neutral prices during drops. The exception is the February drop. When the underlying goes below the delta neutral price, a lot of pressure builds up that results in a significant increase when that pressure is released.
|
||||
|
||||
- Note this is the primary way that I trade my model. I made a scanner that looks for equities that fall below the delta neutral.
|
||||
|
||||
Gamma Neutral
|
||||
|
||||
The Gamma Neutral price that creates a total market gamma of 0 across all GME options (all expiration dates) for a given date. See the "Methodology and Assumptions" section for full detail on how I develop this indicator.
|
||||
|
||||
General notes below for observations on how this indicator behaves:
|
||||
|
||||
- It acts like support/resistance between the delta neutral and the underlying, and typically bounces around between the two prices for most symbols (like we have seen with GME since April).
|
||||
|
||||
- It also goes crazy in periods of high volatility, as you can see by the very higher spikes.
|
||||
|
||||
- A gamma spike indicates the presence of POTENTAILLY slippery option market conditions, which COULD lead to a gamma squeeze. There were certainly spikes present back in January, but we had a few one-day false starts this last month.
|
||||
|
||||
- They are often triggered by high price movement in a day, which can lead to continue high growth if underlying volume supports it.
|
||||
|
||||
- Gamma spikes can also be triggered by unusual options purchases during the day. These are the one ones to find, because you can often catch the high increase waves before they actually start.
|
||||
|
||||
- If I'm trading this indicator, I often either wait for a gamma spike to continue for 2 days in a row and supported by increased volume. Otherwise, I invest straight away if I find a gamma spike just based on options movement (i.e. no significant underlying increase yet).
|
||||
|
||||
I write my own algorithms to produce the results above. The following lists some key methodology and assumptions I use:
|
||||
|
||||
- I rely on daily options and stock summaries produced by [www.historicaloptionsdata.com](http://www.historicaloptionsdata.com/)
|
||||
|
||||
- For the Implied Volatility (IV), I use the following method:
|
||||
|
||||
- Calculate the raw IV of the mid-point between bid/ask price at close.
|
||||
|
||||
- Calculate a "blend" IV, which represents the IV where the call/put parity holds, i.e. where call delta -- put delta = 1, using the same IV.
|
||||
|
||||
- Smooth the mid-point call/put and blend IV using a gaussian smoothing algorithm with a 20-strike window.
|
||||
|
||||
- Apply the smoothed call/put relativities to the smoothed blended IV curve
|
||||
|
||||
- Fill any missing values with a linear interpolation of the neighboring strikes.
|
||||
|
||||
- Using the final call/put IV estimates described above, I calculate my own Greeks. I like this source if you're interested in the formulas: <https://www.macroption.com/option-greeks-excel>
|
||||
|
||||
- For the total market delta and total market gamma, I rely on the OI x delta and OI x gamma for each strike price.
|
||||
|
||||
- Note that the delta of a call is usually equal to (1 - put delta), so not adjustment is needed to the delta signs when calculating the total market delta.
|
||||
|
||||
- However, the call/put gammas are both positive based on the B-S calculation. If you're calculating the total gamma for a portfolio, or the total market, you have to add the call gamma and subtract the put gamma.
|
||||
|
||||
- To estimate the delta neutral and the gamma neutral, I have an algorithm that relies on the optimization toolbox in Matlab to identify an underlying price that achieve a total market delta and a total market gamma.
|
||||
|
||||
- Note that the IV would change with higher/lower prices for the delta/gamma neutral and the sensitivity tests, but the impact is not significant enough to make a meaningful difference and takes significant processing time to apply the IV curves. However, it is an important simplifying assumption to be aware of.
|
||||
|
||||
- Open Interest (OI) is always lagged one day for options summaries. The OCC releases final open interest on a given day, and it represents the OI for the close of the prior day. Therefore, the OI I get in my summaries on 6/28 does not represent the OI as of close on 6/28. It represents the OI as of close on 6/25. If you see a source like Yahoo give live OI throughout the day, they are only estimates, and their algorithm methodology for estimating the OI based on various price/volume movement is a closely guarded secret. Using the prior day OI is currently a limitation of the data available to me.
|
||||
|
||||
*Disclaimer: I'm just a mathematician that likes to play with options data and builds models to trade for a hobby. I have no experience trading professionally or offering any advice to anyone. Nothing is certain in trading. It's all probabilities and what increases/decreases your chance at a profit. This is just one indicator for one type of price movement, and there are many other indicators that can help you make investment decisions.*
|
||||
|
||||
*I'll do my best to respond to all comments, including the negative ones. I'm happy to have a productive chat about any of my logic. I've gotten a lot of good ideas from posting on this forum, so thank you! However, if I can defend myself in a dark parking lot with nothing but my high heels, I can certainly defend myself against online trolls. So be nice.*
|
||||
|
||||
TLDR: This is just a quick update for the Delta Neutral/Gamma Neutral/Gamma Maximum indicators. The DN is currently ~$157, which isn't ideal for red days like we've been having, but GME always bounces back if it does drop. Hold strong!
|
||||
@ -0,0 +1,164 @@
|
||||
Knock Knock Knockin' on Delta Neutral's Door
|
||||
============================================
|
||||
|
||||
| Author | Source |
|
||||
| :-------------: |:-------------:|
|
||||
| [u/yelyah2](https://www.reddit.com/user/yelyah2/) | [Reddit](https://www.reddit.com/r/Superstonk/comments/ojevhv/knock_knock_knockin_on_delta_neutrals_door/) |
|
||||
|
||||
---
|
||||
|
||||
[Possible DD 👨🔬](https://www.reddit.com/r/Superstonk/search?q=flair_name%3A%22Possible%20DD%20%F0%9F%91%A8%E2%80%8D%F0%9F%94%AC%22&restrict_sr=1)
|
||||
|
||||
*Disclaimer: With the recent debate on the sub, I've decided to label my posts as "Possible DD" until someone is able to peer review my work, and independently replicate it. So far, my only proof has been how it works in the field, which means it should not be blindly taken as truth. I fully support academic standards, as every part of my work in real life is peer reviewed and my work has always been improved by an extra set of eyes. However, I also support choice and freedom of speech, so I think it's up to every writer to decide how to label their own work. It's also the responsibility of every reader to judge the quality of content they read, and don't take anything at face value. To the moon for us all!*
|
||||
|
||||
TLDR: My read of several indicators (both contained in this post, and in my model) is we should start seeing some buying pressure this week, most likely in the option settlement period (Tuesday - Thursday), which will start us on a steady incline upwards.
|
||||
|
||||
Although I can't report an imminent trip to the heavens using my indicators, I can say that we're knocking on the Delta Neutral's door... just as good? No.. but it does signal a turn-around is coming soon!
|
||||
|
||||
My work is built on the idea that the market is largely unpredictable, but one particular kind of behavior is certain - hedgies gonna hedge. It's written into their algorithms. Specifically, they like to delta hedge and gamma hedge. This work tries to profit on this one particular type of buying/selling behavior. If you're lost, please refer to the detailed data dictionary, methodology and assumptions section at the bottom.
|
||||
|
||||
*Delta/Gamma Neutral Graphs*
|
||||
|
||||
Here she is! This graph includes the Close Price (green), delta neutral (blue), gamma neutral (orange) and gamma maximum (red), on a log-based 10 scale so you can see those spikes in all their glory.
|
||||
|
||||
[](https://preview.redd.it/6xmd5xls20b71.png?width=910&format=png&auto=webp&s=9fdb10a53d66a907fc38a7580259c821bfd151ca)
|
||||
|
||||
GME 1/4/2021 - 7/12/2021 - Log Based 10 Scale
|
||||
|
||||
Observations for the graph below:
|
||||
|
||||
- the GME close price has been drifting downwards, while the delta neutral has been drifting upwards.
|
||||
|
||||
- The gamma neutral has been bouncing around between, and now the DN/GN/Close are all converging.
|
||||
|
||||
- Because the underlying price is drifting lower, instead of dropping quickly, so it MAY continue to drop past the DN before springing back up, but based on other indicators, I expect that pressure from hitting the DN will start making it more appealing to call buyers, and we should start to see a steady incline soon.
|
||||
|
||||
- The max gamma is holding steady at $260, which is my target to hit in order to launch us upwards.
|
||||
|
||||
Just for fun, I thought would share a few other popular stocks that you can review for comparison. As you can see, the stocks often stay above the delta neutral, but occasionally drop to the delta neutral, and even sometimes below it, before ricocheting back upwards.
|
||||
|
||||
[](https://preview.redd.it/3ictf87i20b71.png?width=910&format=png&auto=webp&s=eb6dceff875317457c402dbe781a2700bdc76d11)
|
||||
|
||||
Movie Stock 1/4/2021 - 6/18/2021
|
||||
|
||||
[](https://preview.redd.it/woxnaf6p20b71.png?width=910&format=png&auto=webp&s=6e8d49ecece333cc7d28a2290f23ca8d0db57496)
|
||||
|
||||
BBBY 1/4/2021 - 6/28/2021
|
||||
|
||||
[](https://preview.redd.it/1netpi6n20b71.png?width=910&format=png&auto=webp&s=aa662200c7effe6332404cd98f7201c3fc14ed1a)
|
||||
|
||||
SPCE 1/4/2021 - 6/28/2021
|
||||
|
||||
*7/16 Expiration Dates*
|
||||
|
||||
I know everyone's getting excited about the 7/16 puts expiring, but I have a few considerations:
|
||||
|
||||
- 47% of all Call OI is expiring this Friday, versus 48% of all put oi. This battle is losing about the same number of bear/bull warriors on each side.
|
||||
|
||||
- On the other hand, 81% of call OI currently has strikes > 1.05 x Close, versus 96% of put oi with strikes < close / 1.05. So we should be keeping a higher percentage of valuable bull warriors, compared to the valuable bear warriors kept by the other side after Friday.
|
||||
|
||||
- The max pain is currently @$180, versus $200 for options expiring next week. I would never trade by the max pain, but it can be a good benchmark, and 11% increase for next week's options is a good sign that the equilibrium is trending up.
|
||||
|
||||
- The IV for the OTM puts (~Put @ -0.25 delta) minus the IV for ATM calls (Call @ ~0.50 delta) has been positive for the last few weeks, indicating higher buying pressure for OTM puts, compared to calls, and has corresponded to our long price drop.
|
||||
|
||||
- However, that difference finally turned negative today, indicating the IV for ATM calls is greater than the IV for the OTM puts, signaling the buying pressure for those OTM puts is easing up this week. Hopefully the bear put's reign of terror is finally subsiding after three.... long... brutal.... weeks....
|
||||
|
||||
Finally, for reasons I would like to keep to myself because it's a big part of my alpha, I am expecting a nice bump in volume in the settlement period this week (Tuesday - Thursday), about an extra 1.1M more than usual, probably on Wednesday, which will result in some buying pressure if we maintain this nice low volume we've been having.
|
||||
|
||||
TLDR: My read of several indicators (both contained in this post, and in my model) is we should start seeing some buying pressure this week, most likely in the option settlement period (Tuesday - Thursday), which will start us on a steady incline upwards.
|
||||
|
||||
*Now it's time to tell you all the boring stuff....*
|
||||
|
||||
[](https://preview.redd.it/tstg6emk20b71.png?width=650&format=png&auto=webp&s=6e000a848f0399709f49b81739e1ce9ffc3a51a8)
|
||||
|
||||
*fart noises*
|
||||
|
||||
Overview
|
||||
|
||||
In general, all stock indicators boil down to two things - reversion to the mean and momentum. Every trader wants to accurately predict these two forces better than other guy, and if you use different indicators than the other guy, that an give you an 'alpha' in trading if it's a better predictor.
|
||||
|
||||
I make a lot of different indicators, but the two primary ones are the Delta Neutral and Gamma Neutral:
|
||||
|
||||
- Delta Neutral (DN) - This helps identify reversion to the mean, and represents the underlying price that would create a total market delta of 0 across all GME options (all expiration dates) for a given date. In general, it acts like a floor to the underlying price, but if the price drops below the delta neutral, then it tends to shoot back up above that line.
|
||||
|
||||
- This is generally how I trade my model. I watch for stocks that drop below the DN, and buy them, expecting for traders to identify that the stock is underpriced and will revert back to a higher level.
|
||||
|
||||
- Gamma Neutral (GN) and Gamma Maximum (GM) - This helps identify momentum. The GN represents the underlying price that would create a total market gamma of 0 across all GME options (all expiration dates) for a given date, whereas the GM represents the underlying price that would create the maximum gamma across the market.
|
||||
|
||||
- In general, a sudden increase in gamma indicates a sharp upward in momentum that continues until that gamma drops.
|
||||
|
||||
- The GM seems to act like a ceiling, but fun things happen when the underlying crossing that threshold!
|
||||
|
||||
This is my own personal 'alpha' that I developed for my own trading purposes, and am sharing with this community because it's given me back so much. This is not financial advice. I'm just a mathematician that likes to play with options data, and I am not a professional trader.
|
||||
|
||||
*Methodology and Assumptions*
|
||||
|
||||
Delta Neutral
|
||||
|
||||
The Delta Neutral price that creates a total market delta of 0 across all GME options (all expiration dates) for a given date. It can also be though of as the intersection of a supply/demand curve for hedged stocks. See the "Methodology and Assumptions" section for full detail on how I develop this indicator.
|
||||
|
||||
Notes below for general options on how the delta neutral interacts with the underlying price:
|
||||
|
||||
- There is a large influx of call option purchases, because:
|
||||
|
||||
- The call prices get less expensive as the underlying price approaches the delta neutral
|
||||
|
||||
- Stock prices usually rebound/revert back to the mean after large crashes, so the price often rebounds anyways.
|
||||
|
||||
- With the large influx of call volume, market makers have to start buying stocks to delta hedge, which turns the price back around and creates an upward trajectory.
|
||||
|
||||
- Important note that hedgies often hedge with derivatives instead of buying stocks, so there isn't a 1-to-1 relationship between the delta and shares bought/sold by hedge funds.
|
||||
|
||||
- Historically, you can see that GME often bounces off the delta neutral prices during drops. The exception is the February drop. When the underlying goes below the delta neutral price, a lot of pressure builds up that results in a significant increase when that pressure is released.
|
||||
|
||||
- Note this is the primary way that I trade my model. I made a scanner that looks for equities that fall below the delta neutral.
|
||||
|
||||
Gamma Neutral
|
||||
|
||||
The Gamma Neutral price that creates a total market gamma of 0 across all GME options (all expiration dates) for a given date. See the "Methodology and Assumptions" section for full detail on how I develop this indicator.
|
||||
|
||||
General notes below for observations on how this indicator behaves:
|
||||
|
||||
- It acts like support/resistance between the delta neutral and the underlying, and typically bounces around between the two prices for most symbols (like we have seen with GME since April).
|
||||
|
||||
- It also goes crazy in periods of high volatility, as you can see by the very higher spikes.
|
||||
|
||||
- A gamma spike indicates the presence of POTENTAILLY slippery option market conditions, which COULD lead to a gamma squeeze. There were certainly spikes present back in January, but we had a few one-day false starts this last month.
|
||||
|
||||
- They are often triggered by high price movement in a day, which can lead to continue high growth if underlying volume supports it.
|
||||
|
||||
- Gamma spikes can also be triggered by unusual options purchases during the day. These are the one ones to find, because you can often catch the high increase waves before they actually start.
|
||||
|
||||
- If I'm trading this indicator, I often either wait for a gamma spike to continue for 2 days in a row and supported by increased volume. Otherwise, I invest straight away if I find a gamma spike just based on options movement (i.e. no significant underlying increase yet).
|
||||
|
||||
I write my own algorithms to produce the results above. The following lists some key methodology and assumptions I use:
|
||||
|
||||
- I rely on daily options and stock summaries produced by [www.historicaloptionsdata.com](http://www.historicaloptionsdata.com/)
|
||||
|
||||
- For the Implied Volatility (IV), I use the following method:
|
||||
|
||||
- Calculate the raw IV of the mid-point between bid/ask price at close.
|
||||
|
||||
- Calculate a "blend" IV, which represents the IV where the call/put parity holds, i.e. where call delta -- put delta = 1, using the same IV.
|
||||
|
||||
- Smooth the mid-point call/put and blend IV using a gaussian smoothing algorithm with a 20-strike window.
|
||||
|
||||
- Apply the smoothed call/put relativities to the smoothed blended IV curve
|
||||
|
||||
- Fill any missing values with a linear interpolation of the neighboring strikes.
|
||||
|
||||
- Using the final call/put IV estimates described above, I calculate my own Greeks. I like this source if you're interested in the formulas: <https://www.macroption.com/option-greeks-excel>
|
||||
|
||||
- For the total market delta and total market gamma, I rely on the OI x delta and OI x gamma for each strike price.
|
||||
|
||||
- Note that the delta of a call is usually equal to (1 - put delta), so not adjustment is needed to the delta signs when calculating the total market delta.
|
||||
|
||||
- However, the call/put gammas are both positive based on the B-S calculation. If you're calculating the total gamma for a portfolio, or the total market, you have to add the call gamma and subtract the put gamma.
|
||||
|
||||
- To estimate the delta neutral and the gamma neutral, I have an algorithm that relies on the optimization toolbox in Matlab to identify an underlying price that achieve a total market delta and a total market gamma.
|
||||
|
||||
- Note that the IV would change with higher/lower prices for the delta/gamma neutral and the sensitivity tests, but the impact is not significant enough to make a meaningful difference and takes significant processing time to apply the IV curves. However, it is an important simplifying assumption to be aware of.
|
||||
|
||||
- Open Interest (OI) is always lagged one day for options summaries. The OCC releases final open interest on a given day, and it represents the OI for the close of the prior day. Therefore, the OI I get in my summaries on 6/28 does not represent the OI as of close on 6/28. It represents the OI as of close on 6/25. If you see a source like Yahoo give live OI throughout the day, they are only estimates, and their algorithm methodology for estimating the OI based on various price/volume movement is a closely guarded secret. Using the prior day OI is currently a limitation of the data available to me.
|
||||
|
||||
TLDR: My read of several indicators (both contained in this post, and in my model) is we should start seeing some buying pressure this week, most likely in the option settlement period (Tuesday - Thursday), which will start us on a steady incline upwards.
|
||||
@ -0,0 +1,68 @@
|
||||
Delta Neutral Update
|
||||
====================
|
||||
|
||||
| Author | Source |
|
||||
| :-------------: |:-------------:|
|
||||
| [u/yelyah2](https://www.reddit.com/user/yelyah2/) | [Reddit](https://www.reddit.com/r/Superstonk/comments/okfg08/delta_neutral_update/) |
|
||||
|
||||
---
|
||||
|
||||
[Possible DD 👨🔬](https://www.reddit.com/r/Superstonk/search?q=flair_name%3A%22Possible%20DD%20%F0%9F%91%A8%E2%80%8D%F0%9F%94%AC%22&restrict_sr=1)
|
||||
|
||||
I know today was a rough day, but wanted to share a quick update of what I'm seeing with my indicators for those that are interested.
|
||||
|
||||
[Prior post if you need help on terminology/methods/assumptions](https://www.reddit.com/r/Superstonk/comments/ojevhv/knock_knock_knockin_on_delta_neutrals_door/)
|
||||
|
||||
[Example of the sub DN life cycle](https://www.reddit.com/r/Superstonk/comments/ok4chd/special_edition_down_under_the_delta_neutral/)
|
||||
|
||||
Updated chart below:
|
||||
|
||||
[](https://preview.redd.it/c3hc9pw249b71.png?width=910&format=png&auto=webp&s=2522625750a354aa817aa5a25b06e722a3dc0fe6)
|
||||
|
||||
GME 1/4/2021 - 7/14/2021
|
||||
|
||||
Quick notes:
|
||||
|
||||
- Today was obviously a bad day, and continued the downward trajectory
|
||||
|
||||
- The start of the downward trend for the DN is not an optimistic indicator for an immediate turn-around. It shows that the options buying/selling/hedging is supporting the underlying's decrease.
|
||||
|
||||
- OTM Put IV increased relative to the ATM Call IV, indicating buying pressure for OTM puts, indicating a bearish bias on the options side.
|
||||
|
||||
- The OTM Put IV increase is also supported by relatively high put volume today (54%), compared to the normal 30% - 40% puts. The increase in put purchases also helps drive the price down.
|
||||
|
||||
- The good news is the 30-day ATM IV tanked for calls, dropping from ~1.3 yesterday to 1.09 today, and came with a 50% discount on those 30-day ATM call prices.
|
||||
|
||||
My best guess is GME will continue to decrease until the put buying pressure wears off and the stock stabilizes. At that point, I expect an influx of call buyers tempted by the discount we're starting, which will help create buying pressure/a reversal.
|
||||
|
||||
I thought I would quickly show a few other stocks that made trips below the DN:
|
||||
|
||||
[](https://preview.redd.it/m294wci469b71.png?width=910&format=png&auto=webp&s=d721c37f86e85ceaebac67399d59091fed2152c4)
|
||||
|
||||
TSLA 2/5/2020 - 6/28/2021
|
||||
|
||||
Here, the pandemic slump sent TSLA down below the DN, and its drop was supported by a decrease in the DN, so it took time for TSLA to recover.
|
||||
|
||||
[](https://preview.redd.it/jr3gaepg69b71.png?width=910&format=png&auto=webp&s=14ff90ce334bc853e2873f402674e8a03f29f9f4)
|
||||
|
||||
ZM 2/5/2020 - 6/28/2021
|
||||
|
||||
ZM obviously didn't have a pandemic slump, and it may have briefly passed below the DN before bouncing back on its trajectory upwards, but as it decreased, and was supported by the DN decrease, the priced bounced beneath the DN during the decrease, until the DN finally supported the increase in June.
|
||||
|
||||
Now a few examples where the DN held relatively steady while the price dipped beneath, and helped the price bounce back quickly:
|
||||
|
||||
[](https://preview.redd.it/jlglhlbg89b71.png?width=910&format=png&auto=webp&s=ac1f52daee86b545bd03a017dba99eec6ddb9baa)
|
||||
|
||||
AMD 2/5/2020 - 6/28/2021
|
||||
|
||||
[](https://preview.redd.it/50e0mfw289b71.png?width=910&format=png&auto=webp&s=2365452ae4da3cf849cf4c68b9e01d05bc134d61)
|
||||
|
||||
CAT 2/5/2020 - 6/28/2021
|
||||
|
||||
[](https://preview.redd.it/s9by02t789b71.png?width=910&format=png&auto=webp&s=2bdf52e1aed2bd6a911f3cfa91202cc4cf2f4337)
|
||||
|
||||
CHWY 2/5/2020 - 6/28/2021
|
||||
|
||||
TLDR: GME could continue its downward trajectory, and my indicators are showing SLIGHT support for that drop, but the slope is very small (3% decrease in the DN this week and a 4% decrease in the Max Gamma). There are good indicators that option buyers will be tempted by the current discounted call options, but my guess is they will wait for the price to stabilize before jumping in. We'll probably have at least one flat trading day before we see investors coming back in.
|
||||
|
||||
*Disclaimer: I'm just a mathematician that likes to play with options data and builds models to trade for a hobby. I have no experience trading professionally or offering any advice to anyone. This is just one indicator for one type of price movement, and there are many other indicators that can help you make investment decisions.*
|
||||
@ -0,0 +1,286 @@
|
||||
Special Edition: Down Under the Delta Neutral
|
||||
=============================================
|
||||
|
||||
| Author | Source |
|
||||
| :-------------: |:-------------:|
|
||||
| [u/yelyah2](https://www.reddit.com/user/yelyah2/) | [Reddit](https://www.reddit.com/r/Superstonk/comments/ok4chd/special_edition_down_under_the_delta_neutral/) |
|
||||
|
||||
---
|
||||
|
||||
[Possible DD 👨🔬](https://www.reddit.com/r/Superstonk/search?q=flair_name%3A%22Possible%20DD%20%F0%9F%91%A8%E2%80%8D%F0%9F%94%AC%22&restrict_sr=1)
|
||||
|
||||
Here we go, here we go! We are under the Delta Neutral (DN).... I repeat... we are under the Delta Neutral...
|
||||
|
||||
This is where I trade this indicator, and we are in my world now.... the Upside Down DN World....
|
||||
|
||||
[](https://preview.redd.it/7cylj5x1k6b71.png?width=1195&format=png&auto=webp&s=ff5babd2fac7b7b66abf0a416ca2e2484c10f7f4)
|
||||
|
||||
do do doooo.....
|
||||
|
||||
I've been showing you the log-based 10 graphs lately, because nothing super exciting has been happening, but here's a graph showing the DN up close and personal, showing we closed under the DN yesterday!
|
||||
|
||||
[](https://preview.redd.it/9ftbjem0k6b71.png?width=910&format=png&auto=webp&s=0916d523cf593eaf2737a62a5f8e8155e0ec4270)
|
||||
|
||||
GME 1/6/2021 - 7/13/2021
|
||||
|
||||
For Part I of this post, let me take you all the way back to FEBRUARY 2021.... the last time it happened...
|
||||
|
||||
PART 1 - THE FEBRUARY TRIP BELOW
|
||||
|
||||
It was a dark time... money lost... sanity drained... FUD everywhere... We all clung onto our hopes, DD, and each other. We all have our memories of that time long ago, and mine are held through the lens of the DN World.
|
||||
|
||||
Let's see what happened:
|
||||
|
||||
- First, the price tanks. Pick your reason why. We aren't covering that now.
|
||||
|
||||
- As the price tanks, hedgies are selling off loads of shares based on their OI, and helping the price continue to drop hard.
|
||||
|
||||
- As the price drops below the delta neutral, the IV is suppressed very quickly, as shown in the graph below. It also tanks from ~10.0 to bouncing around 1.0-3.0 within a WEEK
|
||||
|
||||
- Check what happens when the price tanks in March. The IV has an initial spike, the settled into a 2.0-4.0 range for FIVE weeks before settling down further.
|
||||
|
||||
[](https://preview.redd.it/vonx8y6zj6b71.png?width=910&format=png&auto=webp&s=278e95650859b24575f3a813ca324a89b8852849)
|
||||
|
||||
GME 1/4/2021 - 7/13/2021
|
||||
|
||||
- The IV also tanks under the DN, and ATM prices suddenly go on discount. The 30-day ATM prices go from $130-$155 at the peak (~40% of Underlying Price), to $6-$11 by 2/5 (~10% of Underlying Price).
|
||||
|
||||
- Call Prices are often lower than Put Prices at this time. Call prices look tasty to investors, because... STONKS GO UP! This is why stocks generally sit on top of the delta neutral. There are generally more call buyers than put buyers.
|
||||
|
||||
Quick palette cleanser before we move on?
|
||||
|
||||
[](https://preview.redd.it/qvbe41sxj6b71.png?width=656&format=png&auto=webp&s=8a659858dc3d25f1eb699a17dd7bedf8399b22fc)
|
||||
|
||||
yummmm
|
||||
|
||||
Ok, let's continue....
|
||||
|
||||
- By the crash, the put OI is monstrously huge. I know there's a lot of debate around this right now. My personal opinion is it's a mix of the following:
|
||||
|
||||
- Come on.... the price went from ~$10 to almost $500 in a couple of months. People thought this thing was going to crash back down after it squeezed. It was a safe bet to buy puts on it. Not everything against GME is nefarious...
|
||||
|
||||
- I said not EVERYTHING.... There is some craaazy OTM put volume/OI during the January squeeze, that correspond to increase in those put prices, and the volume / OI ratio is waaaayy high. Again... personal conjecture here... but what if Citadel HF was selling those puts to Citadel MM, and Citadel MM executed their OTM positions, effectively forfeiting their premium. What does this do? It allows Citadel MM to give a cash injection to Citadel HF on the open market, gets around their firewall separating the two entities, and can take advantage of Citadel MM special privileges.
|
||||
|
||||
- I've heard all kinds of theories on other strategies for those OTM put OI's, and for me, it always comes back to: * No, they're not going to do any strategy that involves buying a ton of stocks (*cough* married puts *cough*), because the point is they shorted it a ton, the stocks are hard to come by, and it's really expensive to do. * Who's buying those teeny Puts? There are a lot of reasons someone would want to sell those puts, which is what most explanation boils down to. Hell.... I'd love for someone to buy a load of $0.50 puts from me, but seriously... who's buying them? That's how I came to the theory above. * Feel like there's going to be some fights over this, but let's be honest... no one actually knows the answer to this question, it's all theories at this point.
|
||||
|
||||
- The Call OI has now dropped from 47% on 1/22 to 14% by 2/1. However, once the price drops under the DN, the Call OI starts building up fast, as in 35% - 66% increases within each week, while the put OI only increases around 0% - 2% each week, which makes the Call OI bangs up to 25% by the February bounce.
|
||||
|
||||
Ready to find out what that fast build-up of Call OI did?
|
||||
|
||||
or do you want another palette cleanser?
|
||||
|
||||
[](https://preview.redd.it/wbzkwf9wj6b71.png?width=760&format=png&auto=webp&s=e0f5ac2937910087161c4c02f84440736752e0bd)
|
||||
|
||||
raaaawwwrrr
|
||||
|
||||
Sorry... those come with the territory....
|
||||
|
||||
- Ok, so as all those people are buying up calls, the total market delta is going up, and hedgies are buying up more and more stocks because of it.
|
||||
|
||||
- If you recall a few posts ago, I talked to you about the build-up of the total market delta. If you don't remember, [here's my post](https://www.reddit.com/r/Superstonk/comments/o9qb4n/delta_neutral_update_any_meaningful_underlying/), or check the bottom for the details.
|
||||
|
||||
The graph below summaries the total market delta share equivalents (dark blue) versus the underlying close price (green).
|
||||
|
||||
[](https://preview.redd.it/vqfw7iuuj6b71.png?width=909&format=png&auto=webp&s=d81c3c58fe8eb0b3681407952987199d6bc330f3)
|
||||
|
||||
GME Total Market Delta Share Equivalent versus Underlying Close
|
||||
|
||||
You'll notice that total market delta increased significantly BEFORE the January and February/March squeezes. This helped to contribute to the buying pressure to push GME upwards.
|
||||
|
||||
Ohhh and who do we have here? It's our good friend, GAMMA!!
|
||||
|
||||
High ATM Gamma Factors makes everything nice and squeezy. Those factors increase right before significant increases, as shown in the table below.
|
||||
|
||||
[](https://preview.redd.it/hwhh2hbtj6b71.png?width=910&format=png&auto=webp&s=86f8529521c1bf8ed2ce170fd349bf62618af04a)
|
||||
|
||||
GME Close/DN/ATM Gamma Factors
|
||||
|
||||
Then once the Underlying Close Price hits the Gamma Maximum point and...
|
||||
|
||||
[](https://preview.redd.it/c8nc9y4pj6b71.png?width=2598&format=png&auto=webp&s=3f2a8b7c1074a129bc4c912dbe0bcec665471779)
|
||||
|
||||
BOOOOMMM!!!
|
||||
|
||||
Ok, so all kinds of things happened in February, but I wanted to walk you through the general Life Cycle of stocks under the DN, using GME as an example.
|
||||
|
||||
TLDR - Part 1:
|
||||
|
||||
The life cycle of a stock under the DN generally consists of the following parts:
|
||||
|
||||
- Underlying price drops below the DN
|
||||
|
||||
- IV decreases
|
||||
|
||||
- Call/Put prices decrease
|
||||
|
||||
- Stock price just dropped + stonks go up + calls look tasty = higher call buying
|
||||
|
||||
- Options sellers buy up stocks to hedge
|
||||
|
||||
- If you're lucky, your good friend Gamma shows up
|
||||
|
||||
- Bing, bang, boom, you're back over the DN.
|
||||
|
||||
PART 2 - STARTING THE JOURNEY BELOW
|
||||
|
||||
As we start on this adventure below the DN together, just remember that we are in this together and to always pay the ferryman.
|
||||
|
||||
Let's quickly remind ourselves what's happening now:
|
||||
|
||||
[](https://preview.redd.it/yttusvynj6b71.png?width=910&format=png&auto=webp&s=dbd870b866a4c302612bd3bce967c6c9f1a7e9fe)
|
||||
|
||||
- The price closed at $180.06 yesterday, compared to the DN of $188.
|
||||
|
||||
- The ATM put volatility dropped from 1.2 to 1.09 (lowest since 5/11), and I suspect the ATM call volatility will follow soon.
|
||||
|
||||
- The ATM option prices dropped around 5% today
|
||||
|
||||
- The total market delta equivalent shares is dropping with the price, and accelerating the drop as option sellers and selling off more and more shares
|
||||
|
||||
- The ATM gamma factor is low right now, and nothing particularly interesting is going on with the other gamma indicators
|
||||
|
||||
How long will this take?
|
||||
|
||||
- Retail could storm in at pre-market and buy the dip to bring it out straight away, and it would have nothing to do with these indicators.
|
||||
|
||||
- If hedging controls the volume, then it usually reverses in 1-3 days. When I trade this indicator, I plan for returns to be worth holding for 2 weeks.
|
||||
|
||||
- It is not common for stocks to sit under the DN for as long as GME did back in February, but we all know GME is a special one!
|
||||
|
||||
Watch the following to signal a reversal:
|
||||
|
||||
- A drop in IV/option premiums
|
||||
|
||||
- High call % volume/OI
|
||||
|
||||
- I'll be watching the other indicators, and will report anything interesting
|
||||
|
||||
[](https://preview.redd.it/2telmucmj6b71.png?width=533&format=png&auto=webp&s=d8566faa09d186ce9b64db87c8a9f021a2a575eb)
|
||||
|
||||
To the moon for us all!
|
||||
|
||||
TLDR - Part 2:
|
||||
|
||||
- Hold tight
|
||||
|
||||
- This part is fun
|
||||
|
||||
- Watch options if you want
|
||||
|
||||
*Now it's time to tell you all the boring stuff....*
|
||||
|
||||
[](https://preview.redd.it/bm1l5jikj6b71.png?width=1200&format=png&auto=webp&s=9a704e70bacf00d1f0fafeb6f144a1faf56b47fd)
|
||||
|
||||
wah waahhhh
|
||||
|
||||
Overview
|
||||
|
||||
In general, all stock indicators boil down to two things - reversion to the mean and momentum. Every trader wants to accurately predict these two forces better than other guy, and if you use different indicators than the other guy, that an give you an 'alpha' in trading if it's a better predictor.
|
||||
|
||||
I make a lot of different indicators, but the two primary ones are the Delta Neutral and Gamma Neutral:
|
||||
|
||||
- Delta Neutral (DN) - This helps identify reversion to the mean, and represents the underlying price that would create a total market delta of 0 across all GME options (all expiration dates) for a given date. In general, it acts like a floor to the underlying price, but if the price drops below the delta neutral, then it tends to shoot back up above that line.
|
||||
|
||||
- This is generally how I trade my model. I watch for stocks that drop below the DN, and buy them, expecting for traders to identify that the stock is underpriced and will revert back to a higher level.
|
||||
|
||||
- Gamma Neutral (GN) and Gamma Maximum (GM) - This helps identify momentum. The GN represents the underlying price that would create a total market gamma of 0 across all GME options (all expiration dates) for a given date, whereas the GM represents the underlying price that would create the maximum gamma across the market.
|
||||
|
||||
- In general, a sudden increase in gamma indicates a sharp upward in momentum that continues until that gamma drops.
|
||||
|
||||
- The GM seems to act like a ceiling, but fun things happen when the underlying crossing that threshold!
|
||||
|
||||
This is my own personal 'alpha' that I developed for my own trading purposes, and am sharing with this community because it's given me back so much. This is not financial advice. I'm just a mathematician that likes to play with options data, and I am not a professional trader.
|
||||
|
||||
*Methodology and Assumptions*
|
||||
|
||||
Delta
|
||||
|
||||
The Delta of an option represents the expected change to an option's price based on a $1 change in the security's underlying price. For example, if the GME underlying price is at $100,000,000 and a GME $102,000,000 strike call has a delta of 0.2, then that call option price will increase by $0.2 if the GME underlying price moves up to $100,000,001. Note that the price is also affected by gamma so will actually be higher than the $0.2 price increase estimated by delta, which will be covered later.
|
||||
|
||||
Delta hedging is a trading strategy employed by market makers (MM's) to minimalize the directional risk associated with price movements in the underlying security. Traditionally, you can think of a MM buying 20 (0.2 x 100) stocks of the underlying security if the price increases by $1 (using the example above). However, it's important to note that hedge funds often use other derivatives to hedge, not just buying/selling stocks because it requires less capital to do so. However, these indicators can be used as a directional proxy for some of the MM behavior as the underlying price increases/decreases.
|
||||
|
||||
The total market delta share equivalent represents the sum of delta x OI across all strikes/expiration prices in a given trading day. I will say it one more time, hedge funds are not actually holding this number of shares on a given day to hedge. They often hedge with other market derivatives. However, it can give us an indicator for hedge funds buying/selling underlying equity relativities.
|
||||
|
||||
Delta Neutral
|
||||
|
||||
The Delta Neutral price that creates a total market delta of 0 across all GME options (all expiration dates) for a given date. It can also be though of as the intersection of a supply/demand curve for hedged stocks. See the "Methodology and Assumptions" section for full detail on how I develop this indicator.
|
||||
|
||||
Notes below for general options on how the delta neutral interacts with the underlying price:
|
||||
|
||||
- There is a large influx of call option purchases, because:
|
||||
|
||||
- The call prices get less expensive as the underlying price approaches the delta neutral
|
||||
|
||||
- Stock prices usually rebound/revert back to the mean after large crashes, so the price often rebounds anyways.
|
||||
|
||||
- With the large influx of call volume, market makers have to start buying stocks to delta hedge, which turns the price back around and creates an upward trajectory.
|
||||
|
||||
- Important note that hedgies often hedge with derivatives instead of buying stocks, so there isn't a 1-to-1 relationship between the delta and shares bought/sold by hedge funds.
|
||||
|
||||
- Historically, you can see that GME often bounces off the delta neutral prices during drops. The exception is the February drop. When the underlying goes below the delta neutral price, a lot of pressure builds up that results in a significant increase when that pressure is released.
|
||||
|
||||
- Note this is the primary way that I trade my model. I made a scanner that looks for equities that fall below the delta neutral.
|
||||
|
||||
Gamma
|
||||
|
||||
The Gamma of an option represents the rate of change of the Delta of an option with respect to a $1 underlying price movement. From our example above, if the GME underlying price is at $100,000,000 and a GME $102,000,000 strike call has a delta of 0.2 and a gamma of 0.05, then that call option price would actually increase by $0.25 (0.2 + 0.05) if the GME underlying price moves up to $100,000,001.
|
||||
|
||||
MM also hedge against gamma risk, but the impact of buying/selling securities to hedge is often much lower than the impact of delta hedging (also remember that they use derivatives to hedge too). However, you are probably familiar with gamma because of the "gamma squeeze" that happened back in January. A gamma squeeze happens when the underlying stock price begins to go up very quickly in a short period of time. This forces more buying activity from rapidly increasing deltas/hedging, which continues to inflate the price.
|
||||
|
||||
Gamma Neutral/Maximum
|
||||
|
||||
The Gamma Neutral price that creates a total market gamma of 0 across all GME options (all expiration dates) for a given date. The Gamma Maximum price creates the maximum total market gamma across all GME options.
|
||||
|
||||
General notes below for observations on how the Gamma Neutral indicator behaves:
|
||||
|
||||
- It acts like support/resistance between the delta neutral and the underlying, and typically bounces around between the two prices for most symbols (like we have seen with GME since April).
|
||||
|
||||
- It also goes crazy in periods of high volatility, as you can see by the very higher spikes.
|
||||
|
||||
- A gamma spike indicates the presence of POTENTAILLY slippery option market conditions, which COULD lead to a gamma squeeze. There were certainly spikes present back in January, but we had a few one-day false starts this last month.
|
||||
|
||||
- They are often triggered by high price movement in a day, which can lead to continue high growth if underlying volume supports it.
|
||||
|
||||
- Gamma spikes can also be triggered by unusual options purchases during the day. These are the one ones to find, because you can often catch the high increase waves before they actually start.
|
||||
|
||||
- If I'm trading this indicator, I often either wait for a gamma spike to continue for 2 days in a row and supported by increased volume. Otherwise, I invest straight away if I find a gamma spike just based on options movement (i.e. no significant underlying increase yet).
|
||||
|
||||
General notes below for observations on how the Gamma Maximum indicator behaves:
|
||||
|
||||
- It generally acts like a ceiling for the underlying stock value
|
||||
|
||||
- However, when the stock breaks through the gamma maximum, fun things happen!
|
||||
|
||||
Methodology
|
||||
|
||||
I write my own algorithms to produce the results above. The following lists some key methodology and assumptions I use:
|
||||
|
||||
- I rely on daily options and stock summaries produced by [www.historicaloptionsdata.com](http://www.historicaloptionsdata.com/)
|
||||
|
||||
- For the Implied Volatility (IV), I use the following method:
|
||||
|
||||
- Calculate the raw IV of the mid-point between bid/ask price at close.
|
||||
|
||||
- Calculate a "blend" IV, which represents the IV where the call/put parity holds, i.e. where call delta -- put delta = 1, using the same IV.
|
||||
|
||||
- Smooth the mid-point call/put and blend IV using a gaussian smoothing algorithm with a 20-strike window.
|
||||
|
||||
- Apply the smoothed call/put relativities to the smoothed blended IV curve
|
||||
|
||||
- Fill any missing values with a linear interpolation of the neighboring strikes.
|
||||
|
||||
- Using the final call/put IV estimates described above, I calculate my own Greeks. I like this source if you're interested in the formulas: <https://www.macroption.com/option-greeks-excel>
|
||||
|
||||
- For the total market delta and total market gamma, I rely on the OI x delta and OI x gamma for each strike price.
|
||||
|
||||
- Note that the delta of a call is usually equal to (1 - put delta), so not adjustment is needed to the delta signs when calculating the total market delta.
|
||||
|
||||
- However, the call/put gammas are both positive based on the B-S calculation. If you're calculating the total gamma for a portfolio, or the total market, you have to add the call gamma and subtract the put gamma.
|
||||
|
||||
- To estimate the delta neutral and the gamma neutral, I have an algorithm that relies on the optimization toolbox in Matlab to identify an underlying price that achieve a total market delta and a total market gamma.
|
||||
|
||||
- Note that the IV would change with higher/lower prices for the delta/gamma neutral and the sensitivity tests, but the impact is not significant enough to make a meaningful difference and takes significant processing time to apply the IV curves. However, it is an important simplifying assumption to be aware of.
|
||||
|
||||
- Open Interest (OI) is always lagged one day for options summaries. The OCC releases final open interest on a given day, and it represents the OI for the close of the prior day. Therefore, the OI I get in my summaries on 6/28 does not represent the OI as of close on 6/28. It represents the OI as of close on 6/25. If you see a source like Yahoo give live OI throughout the day, they are only estimates, and their algorithm methodology for estimating the OI based on various price/volume movement is a closely guarded secret. Using the prior day OI is currently a limitation of the data available to me.
|
||||
|
||||
*Disclaimer: With the recent debate on the sub, I've decided to label my posts as "Possible DD" until someone is able to peer review my work, and independently replicate it. So far, my only proof has been how it works in the field, which means it should not be blindly taken as truth. I think every writer should hold themselves to their own standards, and no one else's. Every aspect of my work is peer reviewed in real life, so this is my own standard. It's also the responsibility of every reader to judge the quality of content they read, and don't take anything at face value. To the moon for us all!*
|
||||
@ -0,0 +1,164 @@
|
||||
Delta Neutral Update: Coming up for Air!
|
||||
========================================
|
||||
|
||||
| Author | Source |
|
||||
| :-------------: |:-------------:|
|
||||
| [u/yelyah2](https://www.reddit.com/user/yelyah2/) | [Reddit](https://www.reddit.com/r/Superstonk/comments/oo5c7t/delta_neutral_update_coming_up_for_air/) |
|
||||
|
||||
---
|
||||
|
||||
[Possible DD 👨🔬](https://www.reddit.com/r/Superstonk/search?q=flair_name%3A%22Possible%20DD%20%F0%9F%91%A8%E2%80%8D%F0%9F%94%AC%22&restrict_sr=1)
|
||||
|
||||
All - it looks like this could've been a quick trip underneath the Delta Neutral.
|
||||
|
||||
TLDR: Brace yourself for the possibility of hitting the $184 DN mark a couple times before it rebounds back over the DN.
|
||||
|
||||
*Delta/Gamma Neutral Graphs*
|
||||
|
||||
Here's an update to my graph showing the Close Price (green), delta neutral (blue), gamma neutral (orange) and gamma maximum (red). Log-based 10 scale below so you can see the gamma spikes in all their glory!
|
||||
|
||||
[](https://preview.redd.it/0wrvx6fa3ec71.png?width=910&format=png&auto=webp&s=a46bb78da6a63bb09c17d5c0959697386858693e)
|
||||
|
||||
GME 1/4/2021 - 7/19/2021
|
||||
|
||||
Log based 10 scale to give you a high-level overview
|
||||
|
||||
[](https://preview.redd.it/nyhliedc3ec71.png?width=910&format=png&auto=webp&s=635ff082bad8e984c2e0ff66efb13e612a24ef53)
|
||||
|
||||
GME 1/4/2021 - 7/19/2021 - Log Based 10
|
||||
|
||||
Quick Background
|
||||
|
||||
My work is built on the idea that the market is largely unpredictable, but one particular kind of behavior is certain - hedgies gonna hedge. It's written into their algorithms. Specifically, they like to delta hedge and gamma hedge. This work tries to profit on this one particular type of buying/selling behavior. If you're lost, please refer to the detailed data dictionary, methodology and assumptions section at the bottom.
|
||||
|
||||
Quick Notes
|
||||
|
||||
Key Points:
|
||||
|
||||
- The Delta Neutral (DN) is currently at $184.
|
||||
|
||||
- Last February, GME was deep under the DN for a couple weeks, which built up a lot of pressure and contributed to its rebound upwards.
|
||||
|
||||
- This trip under the DN only lasted a couple days, so the rebound may not be as violent.
|
||||
|
||||
- I also want to warn you that it may tap against $184 a couple times before rebounding. A few examples below.
|
||||
|
||||
As you can see for Roku below, the underlying close (green) had definitive rebounds back above the DN (dark blue) in March/April, but in May, you can see that it tapped against its DN three times before pushing over.
|
||||
|
||||
[](https://preview.redd.it/q13ak3jz4ec71.png?width=910&format=png&auto=webp&s=f59022d187c8e1cab9892e6ef7a89c8d5b9f22f7)
|
||||
|
||||
ROKU 1/4/2021 - 6/17/2021
|
||||
|
||||
Hard to say what the secret ingredient is for what exactly contributes to the definitive push over the DN versus a couple tests first, but it's likely just some good ol' fashion momentum.
|
||||
|
||||
Here's hoping we decisively push through today!
|
||||
|
||||
Here are a couple options tid-bits for you before I sign off:
|
||||
|
||||
- The 7/16 expirations did help with the call %, which currently sits at 26%, compared to 25% on 2/16 and 22% last Monday.
|
||||
|
||||
- The key part here is the comparison to last Monday, because historically call buyers have been predominately buying cheaper calls for the next expiration date, hoping to get lucky and catch the next MOASS, so historically, there is a big drop in call % between Mondays/Friday, then slowly builds-up during the week.
|
||||
|
||||
- We haven't had a Monday call % this high since 1/25!! That Monday had a 37% call OI, so were not quite at the same level now.
|
||||
|
||||
- Yesterday, 69% of all volume was for this next expiration date, and 64% of that volume were for calls, so hoping we push the call OI up!
|
||||
|
||||
- GME IV/prices are still relatively cheap, so hoping that will lead to more call buyers
|
||||
|
||||
- The overall put IV is still higher than the call IV, indicating higher put buying pressure
|
||||
|
||||
- Similarly, the OTM put IV (-0.25 delta) is still higher than the ATM call IV (0.5 delta), which indicates higher OTM buying pressure, so we're not out of the woods yet.
|
||||
|
||||
- I've seen a lot of talk about gamma squeezes, and I don't think we're anywhere close to one. Last January, the ATM gamma was between 0.07 - 0.18 prior to the squeeze. Last Friday, we were at 0.0004, and there was an uptick up to 0.02 yesterday. We'll see if the upward trend continues.
|
||||
|
||||
TLDR: Brace yourself for the possibility of hitting the $184 DN mark a couple times before it rebounds back over the DN.
|
||||
|
||||
Overview
|
||||
|
||||
In general, all stock indicators boil down to two things - reversion to the mean and momentum. Every trader wants to accurately predict these two forces better than other guy, and if you use different indicators than the other guy, that an give you an 'alpha' in trading if it's a better predictor.
|
||||
|
||||
I make a lot of different indicators, but the two primary ones are the Delta Neutral and Gamma Neutral:
|
||||
|
||||
- Delta Neutral (DN) - This helps identify reversion to the mean, and represents the underlying price that would create a total market delta of 0 across all GME options (all expiration dates) for a given date. In general, it acts like a floor to the underlying price, but if the price drops below the delta neutral, then it tends to shoot back up above that line.
|
||||
|
||||
- This is generally how I trade my model. I watch for stocks that drop below the DN, and buy them, expecting for traders to identify that the stock is underpriced and will revert back to a higher level.
|
||||
|
||||
- Gamma Neutral (GN) and Gamma Maximum (GM) - This helps identify momentum. The GN represents the underlying price that would create a total market gamma of 0 across all GME options (all expiration dates) for a given date, whereas the GM represents the underlying price that would create the maximum gamma across the market.
|
||||
|
||||
- In general, a sudden increase in gamma indicates a sharp upward in momentum that continues until that gamma drops.
|
||||
|
||||
- The GM seems to act like a ceiling, but fun things happen when the underlying crossing that threshold!
|
||||
|
||||
This is my own personal 'alpha' that I developed for my own trading purposes, and am sharing with this community because it's given me back so much. This is not financial advice. I'm just a mathematician that likes to play with options data, and I am not a professional trader.
|
||||
|
||||
*Methodology and Assumptions*
|
||||
|
||||
Delta Neutral
|
||||
|
||||
The Delta Neutral price that creates a total market delta of 0 across all GME options (all expiration dates) for a given date. It can also be though of as the intersection of a supply/demand curve for hedged stocks. See the "Methodology and Assumptions" section for full detail on how I develop this indicator.
|
||||
|
||||
Notes below for general options on how the delta neutral interacts with the underlying price:
|
||||
|
||||
- There is a large influx of call option purchases, because:
|
||||
|
||||
- The call prices get less expensive as the underlying price approaches the delta neutral
|
||||
|
||||
- Stock prices usually rebound/revert back to the mean after large crashes, so the price often rebounds anyways.
|
||||
|
||||
- With the large influx of call volume, market makers have to start buying stocks to delta hedge, which turns the price back around and creates an upward trajectory.
|
||||
|
||||
- Important note that hedgies often hedge with derivatives instead of buying stocks, so there isn't a 1-to-1 relationship between the delta and shares bought/sold by hedge funds.
|
||||
|
||||
- Historically, you can see that GME often bounces off the delta neutral prices during drops. The exception is the February drop. When the underlying goes below the delta neutral price, a lot of pressure builds up that results in a significant increase when that pressure is released.
|
||||
|
||||
- Note this is the primary way that I trade my model. I made a scanner that looks for equities that fall below the delta neutral.
|
||||
|
||||
Gamma Neutral
|
||||
|
||||
The Gamma Neutral price that creates a total market gamma of 0 across all GME options (all expiration dates) for a given date. See the "Methodology and Assumptions" section for full detail on how I develop this indicator.
|
||||
|
||||
General notes below for observations on how this indicator behaves:
|
||||
|
||||
- It acts like support/resistance between the delta neutral and the underlying, and typically bounces around between the two prices for most symbols (like we have seen with GME since April).
|
||||
|
||||
- It also goes crazy in periods of high volatility, as you can see by the very higher spikes.
|
||||
|
||||
- A gamma spike indicates the presence of POTENTAILLY slippery option market conditions, which COULD lead to a gamma squeeze. There were certainly spikes present back in January, but we had a few one-day false starts this last month.
|
||||
|
||||
- They are often triggered by high price movement in a day, which can lead to continue high growth if underlying volume supports it.
|
||||
|
||||
- Gamma spikes can also be triggered by unusual options purchases during the day. These are the one ones to find, because you can often catch the high increase waves before they actually start.
|
||||
|
||||
- If I'm trading this indicator, I often either wait for a gamma spike to continue for 2 days in a row and supported by increased volume. Otherwise, I invest straight away if I find a gamma spike just based on options movement (i.e. no significant underlying increase yet).
|
||||
|
||||
I write my own algorithms to produce the results above. The following lists some key methodology and assumptions I use:
|
||||
|
||||
- I rely on daily options and stock summaries produced by [www.historicaloptionsdata.com](http://www.historicaloptionsdata.com/)
|
||||
|
||||
- For the Implied Volatility (IV), I use the following method:
|
||||
|
||||
- Calculate the raw IV of the mid-point between bid/ask price at close.
|
||||
|
||||
- Calculate a "blend" IV, which represents the IV where the call/put parity holds, i.e. where call delta -- put delta = 1, using the same IV.
|
||||
|
||||
- Smooth the mid-point call/put and blend IV using a gaussian smoothing algorithm with a 20-strike window.
|
||||
|
||||
- Apply the smoothed call/put relativities to the smoothed blended IV curve
|
||||
|
||||
- Fill any missing values with a linear interpolation of the neighboring strikes.
|
||||
|
||||
- Using the final call/put IV estimates described above, I calculate my own Greeks. I like this source if you're interested in the formulas: <https://www.macroption.com/option-greeks-excel>
|
||||
|
||||
- For the total market delta and total market gamma, I rely on the OI x delta and OI x gamma for each strike price.
|
||||
|
||||
- Note that the delta of a call is usually equal to (1 - put delta), so not adjustment is needed to the delta signs when calculating the total market delta.
|
||||
|
||||
- However, the call/put gammas are both positive based on the B-S calculation. If you're calculating the total gamma for a portfolio, or the total market, you have to add the call gamma and subtract the put gamma.
|
||||
|
||||
- To estimate the delta neutral and the gamma neutral, I have an algorithm that relies on the optimization toolbox in Matlab to identify an underlying price that achieve a total market delta and a total market gamma.
|
||||
|
||||
- Note that the IV would change with higher/lower prices for the delta/gamma neutral and the sensitivity tests, but the impact is not significant enough to make a meaningful difference and takes significant processing time to apply the IV curves. However, it is an important simplifying assumption to be aware of.
|
||||
|
||||
- Open Interest (OI) is always lagged one day for options summaries. The OCC releases final open interest on a given day, and it represents the OI for the close of the prior day. Therefore, the OI I get in my summaries on 6/28 does not represent the OI as of close on 6/28. It represents the OI as of close on 6/25. If you see a source like Yahoo give live OI throughout the day, they are only estimates, and their algorithm methodology for estimating the OI based on various price/volume movement is a closely guarded secret. Using the prior day OI is currently a limitation of the data available to me.
|
||||
|
||||
*Disclaimer: I'm just a mathematician that likes to play with options data and builds models to trade for a hobby. I have no experience trading professionally or offering any advice to anyone. This is just one indicator for one type of price movement, and there are many other indicators that can help you make investment decisions.*
|
||||
@ -0,0 +1,154 @@
|
||||
Delta Neutral Update: Blowing Past the DN!
|
||||
==========================================
|
||||
|
||||
| Author | Source |
|
||||
| :-------------: |:-------------:|
|
||||
| [u/yelyah2](https://www.reddit.com/user/yelyah2/) | [Reddit](https://www.reddit.com/r/Superstonk/comments/ooc25b/delta_neutral_update_blowing_past_the_dn/) |
|
||||
|
||||
---
|
||||
|
||||
[Possible DD 👨🔬](https://www.reddit.com/r/Superstonk/search?q=flair_name%3A%22Possible%20DD%20%F0%9F%91%A8%E2%80%8D%F0%9F%94%AC%22&restrict_sr=1)
|
||||
|
||||
TLDR: We blew past the DN today, and now we have a higher probability of continuing this upward momentum.
|
||||
|
||||
Recap:
|
||||
|
||||
[On 7/13, I called out that we were about to hit the DN, and it will probably mean we'll bounce off it, like we have in the past.](https://www.reddit.com/r/Superstonk/comments/ojevhv/knock_knock_knockin_on_delta_neutrals_door/)
|
||||
|
||||
[But we didn't bounce off it, instead we sunk underneath it for the first time since February. I gave an overview of life under the DN.](https://www.reddit.com/r/Superstonk/comments/ok4chd/special_edition_down_under_the_delta_neutral/)
|
||||
|
||||
[Today, it looked like we would blow past the DN, and I warned that sometimes stocks bounce off it like a ceiling a couple times before going over.](https://www.reddit.com/r/Superstonk/comments/oo5c7t/delta_neutral_update_coming_up_for_air/)
|
||||
|
||||
Today - I'm happy to report that GME was given a choice.... accept the DN as the ceiling like the weakling or push through it... GME made its choice:
|
||||
|
||||
[](https://preview.redd.it/9yulxdq7tfc71.png?width=268&format=png&auto=webp&s=3af5256082e71d35391525a3536d082c6625e440)
|
||||
|
||||
yessssss......
|
||||
|
||||
And to that I say....
|
||||
|
||||
[](https://preview.redd.it/bm3i1pfetfc71.png?width=537&format=png&auto=webp&s=071c422f39c69fc121b2c1ea9bfd49cb8c563f68)
|
||||
|
||||
Updated graph below, showing the Close Price (green), delta neutral (blue), gamma neutral (orange) and gamma maximum (red). Log-based 10 scale below so you can see the gamma spikes in all their glory!
|
||||
|
||||
[](https://preview.redd.it/s2vt0oigtfc71.png?width=910&format=png&auto=webp&s=bf4afc39cdaa6adddfa9ef229dfc953a62f7c94f)
|
||||
|
||||
GME 1/4/2021 - 7/20/2021
|
||||
|
||||
[](https://preview.redd.it/pnui6sxwtfc71.png?width=910&format=png&auto=webp&s=b750bbb248fb84e25e04e11f1008ef4f6563403a)
|
||||
|
||||
GME 1/4/2021 - 7/20/2021 - log based 10
|
||||
|
||||
Yes, there is a chance it will go back down, bounce of the DN (currently at $185), go back beneath and start all over. However, there is a higher probability that it will keep going up at this point.
|
||||
|
||||
Our next target should be the gamma max point of $241. If we get there, then we should have the max amount of gamma to....
|
||||
|
||||
[](https://preview.redd.it/tvqppvsoufc71.png?width=1920&format=png&auto=webp&s=bc0ded79f84838e8a0176788f7443f3fc8611869)
|
||||
|
||||
BOOOOOOM!!!
|
||||
|
||||
Here are a couple options tid-bits for you before I sign off:
|
||||
|
||||
- The 7/16 expirations did help with the call %, which is currently up to 28%. Highest it's been since 1/26/2021!
|
||||
|
||||
- 68% of volume was for calls today, so should help push that call OI higher!
|
||||
|
||||
- GME IV/prices are getting higher, so expecting the options buying to cool off a bit.
|
||||
|
||||
- Note that I don't think we're anywhere close to one until we start approaching the gamma max point (~$240). Last January, the ATM gamma was between 0.07 - 0.18 prior to the squeeze. Last Friday, we were at 0.0004, up to 0.02 yesterday and back down to 0.01 today.
|
||||
|
||||
Now it's time for the boring part of our story.....
|
||||
|
||||
[](https://preview.redd.it/xs87fj3qtfc71.png?width=1284&format=png&auto=webp&s=381b8d2f45c061e51eb8bd1392d961f4c94fec01)
|
||||
|
||||
*yaaawwnn*
|
||||
|
||||
Overview
|
||||
|
||||
In general, all stock indicators boil down to two things - reversion to the mean and momentum. Every trader wants to accurately predict these two forces better than other guy, and if you use different indicators than the other guy, that an give you an 'alpha' in trading if it's a better predictor.
|
||||
|
||||
I make a lot of different indicators, but the two primary ones are the Delta Neutral and Gamma Neutral:
|
||||
|
||||
- Delta Neutral (DN) - This helps identify reversion to the mean, and represents the underlying price that would create a total market delta of 0 across all GME options (all expiration dates) for a given date. In general, it acts like a floor to the underlying price, but if the price drops below the delta neutral, then it tends to shoot back up above that line.
|
||||
|
||||
- This is generally how I trade my model. I watch for stocks that drop below the DN, and buy them, expecting for traders to identify that the stock is underpriced and will revert back to a higher level.
|
||||
|
||||
- Gamma Neutral (GN) and Gamma Maximum (GM) - This helps identify momentum. The GN represents the underlying price that would create a total market gamma of 0 across all GME options (all expiration dates) for a given date, whereas the GM represents the underlying price that would create the maximum gamma across the market.
|
||||
|
||||
- In general, a sudden increase in gamma indicates a sharp upward in momentum that continues until that gamma drops.
|
||||
|
||||
- The GM seems to act like a ceiling, but fun things happen when the underlying crossing that threshold!
|
||||
|
||||
This is my own personal 'alpha' that I developed for my own trading purposes, and am sharing with this community because it's given me back so much. This is not financial advice. I'm just a mathematician that likes to play with options data, and I am not a professional trader.
|
||||
|
||||
*Methodology and Assumptions*
|
||||
|
||||
Delta Neutral
|
||||
|
||||
The Delta Neutral price that creates a total market delta of 0 across all GME options (all expiration dates) for a given date. It can also be though of as the intersection of a supply/demand curve for hedged stocks. See the "Methodology and Assumptions" section for full detail on how I develop this indicator.
|
||||
|
||||
Notes below for general options on how the delta neutral interacts with the underlying price:
|
||||
|
||||
- There is a large influx of call option purchases, because:
|
||||
|
||||
- The call prices get less expensive as the underlying price approaches the delta neutral
|
||||
|
||||
- Stock prices usually rebound/revert back to the mean after large crashes, so the price often rebounds anyways.
|
||||
|
||||
- With the large influx of call volume, market makers have to start buying stocks to delta hedge, which turns the price back around and creates an upward trajectory.
|
||||
|
||||
- Important note that hedgies often hedge with derivatives instead of buying stocks, so there isn't a 1-to-1 relationship between the delta and shares bought/sold by hedge funds.
|
||||
|
||||
- Historically, you can see that GME often bounces off the delta neutral prices during drops. The exception is the February drop. When the underlying goes below the delta neutral price, a lot of pressure builds up that results in a significant increase when that pressure is released.
|
||||
|
||||
- Note this is the primary way that I trade my model. I made a scanner that looks for equities that fall below the delta neutral.
|
||||
|
||||
Gamma Neutral
|
||||
|
||||
The Gamma Neutral price that creates a total market gamma of 0 across all GME options (all expiration dates) for a given date. See the "Methodology and Assumptions" section for full detail on how I develop this indicator.
|
||||
|
||||
General notes below for observations on how this indicator behaves:
|
||||
|
||||
- It acts like support/resistance between the delta neutral and the underlying, and typically bounces around between the two prices for most symbols (like we have seen with GME since April).
|
||||
|
||||
- It also goes crazy in periods of high volatility, as you can see by the very higher spikes.
|
||||
|
||||
- A gamma spike indicates the presence of POTENTAILLY slippery option market conditions, which COULD lead to a gamma squeeze. There were certainly spikes present back in January, but we had a few one-day false starts this last month.
|
||||
|
||||
- They are often triggered by high price movement in a day, which can lead to continue high growth if underlying volume supports it.
|
||||
|
||||
- Gamma spikes can also be triggered by unusual options purchases during the day. These are the one ones to find, because you can often catch the high increase waves before they actually start.
|
||||
|
||||
- If I'm trading this indicator, I often either wait for a gamma spike to continue for 2 days in a row and supported by increased volume. Otherwise, I invest straight away if I find a gamma spike just based on options movement (i.e. no significant underlying increase yet).
|
||||
|
||||
I write my own algorithms to produce the results above. The following lists some key methodology and assumptions I use:
|
||||
|
||||
- I rely on daily options and stock summaries produced by [www.historicaloptionsdata.com](http://www.historicaloptionsdata.com/)
|
||||
|
||||
- For the Implied Volatility (IV), I use the following method:
|
||||
|
||||
- Calculate the raw IV of the mid-point between bid/ask price at close.
|
||||
|
||||
- Calculate a "blend" IV, which represents the IV where the call/put parity holds, i.e. where call delta -- put delta = 1, using the same IV.
|
||||
|
||||
- Smooth the mid-point call/put and blend IV using a gaussian smoothing algorithm with a 20-strike window.
|
||||
|
||||
- Apply the smoothed call/put relativities to the smoothed blended IV curve
|
||||
|
||||
- Fill any missing values with a linear interpolation of the neighboring strikes.
|
||||
|
||||
- Using the final call/put IV estimates described above, I calculate my own Greeks. I like this source if you're interested in the formulas: <https://www.macroption.com/option-greeks-excel>
|
||||
|
||||
- For the total market delta and total market gamma, I rely on the OI x delta and OI x gamma for each strike price.
|
||||
|
||||
- Note that the delta of a call is usually equal to (1 - put delta), so not adjustment is needed to the delta signs when calculating the total market delta.
|
||||
|
||||
- However, the call/put gammas are both positive based on the B-S calculation. If you're calculating the total gamma for a portfolio, or the total market, you have to add the call gamma and subtract the put gamma.
|
||||
|
||||
- To estimate the delta neutral and the gamma neutral, I have an algorithm that relies on the optimization toolbox in Matlab to identify an underlying price that achieve a total market delta and a total market gamma.
|
||||
|
||||
- Note that the IV would change with higher/lower prices for the delta/gamma neutral and the sensitivity tests, but the impact is not significant enough to make a meaningful difference and takes significant processing time to apply the IV curves. However, it is an important simplifying assumption to be aware of.
|
||||
|
||||
- Open Interest (OI) is always lagged one day for options summaries. The OCC releases final open interest on a given day, and it represents the OI for the close of the prior day. Therefore, the OI I get in my summaries on 6/28 does not represent the OI as of close on 6/28. It represents the OI as of close on 6/25. If you see a source like Yahoo give live OI throughout the day, they are only estimates, and their algorithm methodology for estimating the OI based on various price/volume movement is a closely guarded secret. Using the prior day OI is currently a limitation of the data available to me.
|
||||
|
||||
*Disclaimer: I'm just a mathematician that likes to play with options data and builds models to trade for a hobby. I have no experience trading professionally or offering any advice to anyone. This is just one indicator for one type of price movement, and there are many other indicators that can help you make investment decisions.*
|
||||
Reference in New Issue
Block a user