🌅 Good Morning, Reader!
This is the only April 29th of 2024 we get, so let's make it a great one.
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At GammaEdge, we look to understand market sentiment, structure, and key levels to focus on through the lens of the options market. We follow the same process every single day to formulate our gameplan, that being:
1) Identify the transition zones -> these are key areas in the complex where we see bullish/bearish shifts as well as low-pressure areas that offer minimal dealer influence.
2) Identify key gamma, delta, and other major strikes -> these are key levels in the complex where put and call speculators are targeting. These levels have multiple uses including ranges for the day and trade entries/exits.
3) Identify other changes that are relevant -> this could be the shifting of key levels or transition zones, gamma conditions, and call/put speculator dominance above and below spot price.
With that, let's get into today's pre-market prep.
Yesterday's 0DTE Recap
Below is a replay GIF of $SPX spot price (5 minute bars), gamma levels (green/red horizonal bars) as well as our key levels (PTrans, +GEX, etc.) throughout the day. What is notable is the concentration of price action around 5100, which can be easily visualized below for its magnitude relative to all other strikes.
Below is our $volm command, which displays the "centroid" of put and call volume for each 15 minute slice of yesterday's session. Paired with the GIF above, it's powerful to see how both the call and put centroids move throughout the session. We do not see a lot call activity happen about 5120; however, we do see a trend higher throughout the session on the puts side, confirming that (most likely) puts were being closed and to some extent.
Today's SPX 0DTE Levels
🔄GEX Transition Zone: 5090-5095*
♻️DEX Transition Zone: 5070-5095*
⛵️Drunken Sailor Zone: 5035-5135**
📈Upside Targets (>5095): 5125 (+GEX) & COI at 5225 (likely to bridge too far today)***
📉Downside Targets (<5090): -GEX at 5085***
*Choppy price action is often a characteristic when within this range.
**This zone is not a science like the GEX/DEX transition zones -- it's an observation of structure where NetOI is weak(er). While we are in this range, market volume intraday overwhelms the structure -- and participants can move price around up and down without much consideration for the overall structure.
***Stay alert to intraday level changes using: 1. WebApp 2. $em command ($em spx) 3. $s command ($s spx 0 0) 4. $netstat spx
💡Other Notes
→ Gamma Condition: Call Dominated (change from prior day)
→ Delta Condition: Above: ITM Puts (same as prior day) | Below: ITM Calls (same as prior day)
→ Be cognizant of price in relation to transition zone. Are we above or below? Create your If/Then scenarios. As for us, we are set to open (at of 840am EST) above PTrans at 5095. This gives a slight bias to bulls until this level is lost. 5125 is +GEX, which is the upside strikes being targeted by the call speculators.
Bonus Content
Given that there is a JPM expiration tomorrow, we want to hit on its important. Let's walk through a simple thought experiment as if there is only one 5115 short call and no other open interest in the complex.
Short Call Above Spot Price (OTM)
When we (the trader) are short calls, we are short delta. When our short call position is OTM, our deltas decay to 0 overtime, hence we get longer in expiration (because our deltas are moving from <-0.5 to 0 at expiration). At the same time, dealers, who are on the other side of the trade (i.e, long the 5115 call) are getting shorter as time passes to expiration due to the decay on deltas. This decay of deltas will force their short hedge out of balance. When the position was initial put on and they went long a call, they needed to sell the market to hedge flat. However, as time has passed and this option has remained OTM, it's deltas has decayed so they have too much of their short hedge on and thus, will need to buy to unwind some of their hedge. This action would help push spot price into 5115.
Short Call Below Spot Price (ITM)
As a trader, when our short call position now goes ITM, it is "charming" its way to a delta of -1.0 at expiration, which means we are getting shorter as time passes. On the other hand, The dealer's underlying long call position is now ITM and getting longer as we approach expiration. Therefore, the dealers must continue to increase their short hedge, which could suppress price into 5115.
Do you see how this short call position could create a pinning effect at 5115? If we remain below 5115, we'll see charm naturally push us upward in 5115, and if we push above 5115, we'll see charm push us back down. This creates a theoretical pinning effect around 5115, which is unique for short options of magnitude.
Today + Tomorrow's Expiration
Given what was discussed above, we can also see that 5100 is a significant strike, which the trader is long. If price remain below 5100, then we see a significant amount of overhead call charm eroding as the 5100 strike collapses. The collapse of the 5100 strike will remove deltas from our book, making the dealer longer (as they are short those calls), and all things equal they will have a downward pressure develop. This could overcome the pinning effect of 5115 just discussed above.
If price moves above 5100, then those long calls are now ITM and there will be a great deal of support under us, both from decaying puts, as the 5100 long call position (which is both COI and +GEX).
Market Trend Model
The short-term signal via the cumulative tick and short-term moving average ribbon continues to strengthen. To become more confident in the staying power of this recent rally, we want to see the cumulative tick clear the top of the rainbow ribbon, that being the think cyan line. Additionally, we want to see market breadth improve, which is the top section in the graphic. This presents 52 week new highs (green line) vs. new lows (red line). It's clear that breadth favors new lows, but Friday was a welcomed change.
The long-term trend, as represented by the rainbow ribbon, is still in a decisive flat to lower, so we're early to call a longer-termed trend change. Attempting to call the exact bottom is a fool's game and the opportunities to go long, if they exist, will be plentiful in the days to come.
GammaEdge Scan Results
NOTE: For the sake of completeness and performing a consistent routine, we are providing both call and put dominated scans. However, we are not representing to go long or short any of these.
CallDomDel: Returns stocks with are call dominated below and above spot price. This scans helps us to monitor overall market sentiment by seeing the number of stocks that are populated in the scan. Additionally, the scan helps us find favorable candidates to the upside as we know that a bullish signature is when we see call holders below spot price (as opposed to put speculators) as well as call speculators above spot price (as opposed to put holders). This condition of call speculators above and call holders below indicates that the wisdom of crowds is more favorable on the stock than not.
PutDomDel: Returns stocks with are put dominated below and above spot price. This scans helps us to monitor overall market sentiment by seeing the number of stocks that are populated in the scan. Additionally, the scan helps us find favorable candidates to the downside (or at least not to go long) as we know that a bearish signature is to see puts speculators below spot price (as opposed to call holders) as well as puts holders above spot price (as opposed to call speculators). This condition of put holders above and put speculators below indicates that the wisdom of crowds is more pessimistic on the stock than not.
Zero2Ptrans: Returns stocks that closed above ZeroGex but below Ptrans. ZeroGex is generally in the middle of the transition zone and is theoretically where call and put gamma is balanced. In a bullish environment, this level can act as support and resistance in a bearish environment. Trades off ZeroGEX can be thought of as aggressive first entries with an anticipation of a move through PTrans (more on this discussed in the scan below). For confluence, we want to see these stocks also populate on the $calldomdel scan above.
Ptrans2PGex: Returns stocks that closed above PTrans but below PGEX. We know that a bullish characteristic of a stock is when it's above it's PTrans level, as has entered a call dominated environment. The natural first target is +GEX as this is where short-term call speculators are targeting. From there, it is COI as this is the level with the most call open interest. For confluence, we want to see these stocks also populate on the $calldomdel scan above.
Single Stock Review
*On Sundays, we post a thread on Twitter/X going over all Mag7 stocks. For the sake of not duplicating efforts, we have posted the direct link below from yesterday's work. Tuesday-Friday, we will provide updates to those stocks.
🤝 Thank you for reading, and wishing you all a successful trading day! We’re committed to providing you with the latest and most actionable market insights. Here's to a successful trading day ahead.
Charting Command of the Day
With in the discord, GammaEdge offers 25+ proprietary charting commands that hit on all things gamma, delta, charm, vanna, open interest, and volume. We will highlight key commands within this section.
Today's command is $em, which displays (i) 5 minute price bars, (ii) gamma levels consistent with what is seen in the web app, and (iii) GammaEdge key levels (e.g., PTrans, +GEX, etc.).
Other features of this command are:
- Ability to analyze multiple expirations at a time
- Ability to force spot price to be where ever you want it to be (useful for pre-market gap higher/lower days)
- As shown in the 2nd screen shot below, we provide an interactive link so you can manipulate the imagine as you see fit within your browser
*reminder, typing in $em help will show you the entire syntax of the command.
Within the discord, we also provide an automated channel for this command specific to SPX $0dte. Within this channel, we automatically produce this chart on 5 minute increments throughout the session. This is a great way to get up to speed with where structure is (spot price + key levels) as well as the ability to scroll through the prior charts to "replay" where we have come from during the session.
Recent Twitter/X Threads
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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.
