🌅 Good Morning Reader!
You know that moment when your trade is working perfectly?
You're riding a strong trend, momentum is building, and there's no obvious resistance level in sight.
Then suddenly - without any catalyst or news - price hits an invisible wall and reverses hard.
- No major technical level
- No round number
- No obvious supply zone
Just a seemingly random reversal that kills your momentum and leaves you wondering "what the heck just happened?"
What you likely encountered was a critical balance point in the options market structure - a hidden level where cumulative profit-taking behavior creates predictable support/resistance zones that don't show up on traditional charts.
These "invisible walls" have names: COTMP and COTMC. And once you understand what they represent, those seemingly random reversals will start to make perfect sense.
Introducing COTMP and COTMC
Before getting into the specifics of these two powerful levels, a bit of a primer is warranted...
At a high level, these levels are meant to represent when the cumulative delta exposure from out-of-the-money positions equals the delta exposure from in-the-money positions.
This creates a "teeter-totter" effect - when the balance of positioning tips to favor ITM positions over OTM positions, traders holding those profitable options naturally want to cash out.
Now to the two key levels:
- COTMP (Cumulative Out of The Money Puts) –your downside target– represents the balance point where out-of-the-money put deltas equal in-the-money put deltas. As spot price moves below this level, OTM puts transition to ITM, creating a natural monetization zone.
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- COTMC (Cumulative Out of The Money Calls) –your upside target– functions as the upside equivalent - the level where OTM call deltas balance ITM call deltas. Price movement above COTMC shifts the moneyness profile, triggering profit-taking behavior from call holders.
These levels represent crucial inflection points driven by options market psychology and the natural human tendency to protect profits when speculative positions move in-the-money.
Think of it this way: speculators generally open long OTM positions (for the convexity) expecting spot price will move toward their strike. A trader purchasing 20-delta calls experiences validation as those positions appreciate and approach 50-delta territory (i.e., ATM). The natural inclination is to realize those gains, particularly when the risk/reward profile shifts from convex to linear (in terms of contract appreciation).
This is exactly what COTMC represents in this example - the tipping point when the bulk of existing options flip from OTM to ITM, triggering that natural impulse to sell and protect profits across the market.
For further detail on these levels and the core psychology behind them, we have prepared this deep dive video for you:
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Practical Application in Live Markets
The key unlock (and takeaway) for active traders is recognizing these levels as areas where collective profit-taking behavior can overwhelm directional momentum - even in strongly trending markets.
Tesla Case Study
​In this example, Tesla's COTMC sat at $275 with the underlying trading around $256. This level represented the mathematical balance point where call speculation would likely encounter monetization pressure. Notice the asymmetry - the COTMP level at $253 reflects the different risk/reward psychology between upside speculation and downside hedging.
Microsoft Case Study
​Microsoft's violation of COTMP at the market open, followed by approximately 1% additional downside before recovering, demonstrates the typical behavior pattern. The initial violation doesn't invalidate the level - it often marks the beginning of the profit-taking process rather than the end.
Expiration Selection and Timing Considerations
Professional application requires understanding which option expirations (to include in your analysis) provides the most relevant signals for your trading timeframe.
Strategic Framework for Complex Selection
​Key Considerations
- 0DTE traders: Focus on same-day expiration levels for maximum relevance to intraday flows
- Multi-day positions: Full complex analysis captures broader market positioning
- Pre-market levels: Provide the structural foundation before intraday volume distorts the calculations
- News events: Isolate event-driven expirations from your analysis when possible
The morning calculation represents the "pure" structural view before intraday volume and moneyness shifts begin affecting the numbers.
When Market Structure Breaks Down
Understanding the limitations is crucial for professional application. These levels function as "sensitivity points" rather than absolute support/resistance lines.
Gap Day Dynamics
​Significant gaps above COTMC or below COTMP often indicate that larger market forces are overwhelming the normal options-driven structure. On such days, wait for the initial volatility to settle (typically 10-20 minutes post-open) before relying on these levels for trading decisions.
The key warning sign: when price is trading significantly outside these ranges at the open, you're operating in a different market regime where normal profit-taking behavior may be superseded by news flow, institutional rebalancing, or other macro factors.
What Could Go Wrong
- High volatility events: FOMC announcements, earnings, or major news can completely overwhelm these levels
- Low volume periods: Holiday trading or early morning sessions may not have enough participation to make these levels meaningful
- 0DTE volume: Heavy same-day trading can swamp the pre-market calculations, requiring real-time volume analysis (hint, we do that at GammaEdge)
Implementation Framework
Daily Preparation
- Execute your morning analysis using the Web App Dashboard (or the $s command). NOTE: we perform a premarket analysis most mornings for the community and have outlined our framework HERE.
- Note any significant gaps relative to pre-market calculations
- Assess whether news events or scheduled releases might affect normal behavior patterns
Intraday Execution
- Approaching COTMC: Anticipate potential distribution as call holders secure profits
- Testing COTMP: Monitor for potential accumulation as put holders exit profitable positions
- Clean violations: Shift focus to volume-based tools (VOLD/VOLM) when levels fail to hold (i.e., intraday buying and selling can overwhelm these levels)
Risk Management Protocol
- Treat these as zones rather than precise lines
- When levels are breached decisively, reassess whether market structure has shifted
FAQs
Q: What does it mean when these levels shift intraday? As we progress through the day, we expect that intraday action will move the COTMP/COTMC values from the premarket calculated values — moneyness changes as spot price moves and time passes. This is where the art of trading + using VOLD/VOLM and the Market Trend Model (specifically the cumulative tick) come into play.
If we drop below COTMP by a significant amount (rare, by the way), we believe that the chance of recovery wanes. This is where it’s critical to understand if we are seeing further downside expansion via the intraday volume commands and the Market Trend Model — said another way, COTMP can be swamped by 0DTE transactions, which are the opening or closing of calls or puts.
Q: What does it mean when the levels shift day over day? Using COTMC for this example:
If we see COTMC progress higher up the strike chain, this is taken as bullish for the underlying as it indicates that the market is speculating to the upside via adding more OTM call deltas — we can have confidence that the asset's RHP (right hand plane) is being bid upward by market participants.
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Conversely, if we start to see COTMC move lower down the strike chain, then we're seeing a drop in OTM deltas in the RHP and less speculation.
Q: How reliable are these levels? These levels work most effectively in normal market conditions with adequate volume. They're less reliable during major news events, low-volume periods, or when significant gaps occur. Think of them as high-probability zones rather than guaranteed reversal points.
Final Thoughts
COTMP and COTMC levels are most powerful when integrated with your existing technical framework rather than used in isolation. They provide context for understanding why certain support/resistance zones hold or fail, and help explain seemingly random reversals in trending markets.
The pre-market calculations offer your structural roadmap for the session. As intraday action unfolds, use these levels alongside intraday volume analysis and the Market Trend Model to build a comprehensive view of market dynamics.
For traders managing multi-day positions, monitor how these levels shift day-over-day. Rising COTMC levels in a bull market confirm that new money is entering the upside speculation, while stagnant or declining levels may signal waning enthusiasm even if price continues higher.
Key Takeaway
These levels matter because they represent real money at risk and the human psychology of profit protection (fear and greed). When traders have gains to secure, they secure them - creating tradeable inflection points that persist across market cycles.
Understanding where collective profit-taking pressure is likely to emerge gives you a significant edge in timing entries, managing existing positions, and setting realistic profit targets based on market structure rather than arbitrary technical levels.
Until next time,
Taylor
GammaEdge Co-Founder
PS - Here is a helpful cheat sheet for COTMP/COTMC you can refer back to (and this lesson in its entirety!).
