Imagine having the ability to predict where index prices will rally and retreat? Spotgamma analyzes the implied volatility and dealer positioning across the full spectrum of the S&P basket, including /ES, $SPY, $SPX, and $XSP, to deliver institutional-grade insights into the hidden levels of crucial support and resistance.
Have you ever wondered why the index price tends to consolidate around a specific price level? This phenomenon is frequently attributed to gamma hedging. Large banks utilize this strategy to monetize their substantial gamma positions by buying and selling futures on both sides of their trades. After profiting from futures all day, they eventually close their large-scale option positions, only to repeat the process the next day!
When retail and institutional investors buy calls in an bullish market, Market Makers - the opposite of every trade, have to SELL these calls to us. Well, being short calls in a bullish markets means Market Makers are LOSING money. Y'see, Market Makers don't make money from directional trades - they make their money from the bid-ask spread and from making trades ... from making a market to trade in!
Well, to stay market neutral and to neutralize losses, Market Makers have levels at which they will start buying shares of the underlying (or buy futures in the case of indexes). The profit they make on the shares or futures neutralizes losses from being short calls in an uptrending market. The result?
Imagine knowing a level when millions of shares were about to be bought. Yeah!
That would be a good spot to 'buy in' or to maybe feel like your trade conviction has increased!!!
The folks at SpotGamma have coined these the Hedge Wall in a bullish market, and the Volatility Trigger in a bearish market. They update these levels daily for indexes, futures, and almost any optionable stock ticker in their Equity Hub.
Here's an article I wrote about "Understanding Market Maker Hedging"!
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