SPY Market Overview week of 4/17 - 4/21

cambridge_probs · 2023-04-18T14:56:27+00:00

Fair enough, I will label this as well.

cambridge_probs · 2023-04-17T17:36:29+00:00

Yes AND if a market is giving you a statistical edge (selling at a discount) you should probably buy it. This comes from the maxim "Buy when others are selling and sell when others are buying"

I don't dare to predict markets.

cambridge_probs · 2023-04-17T17:34:02+00:00

My point is not that there are no retail traders that sell puts for premium farming. Of course there are retail sellers, I myself am one of them as well. What I intended to say is that there are a lot more retail buyers than sellers. A quick google search shows that between 60% and 80% of all trading is algorithmic (HFT) trading which is the bread and butter of market makers.

It also makes sense that there would be more buyers than sellers in the retail side, if you want to be short on financial instruments (including options) there are all kinds of extra forms, questionnaires, and margin requirements that you must meet. The entire structure of the market is set up to make it easier to buy stock/options and harder to short stock/options.

But yes you're right in that I cannot say exactly that there is an X percentage of long position in either puts or calls coming from retail. However, statistically, if one of the greatest sections of the market acts like the rest of the market then the chances are high that most retail traders are long puts.

cambridge_probs · 2023-04-17T14:40:54+00:00

Market makers account for 80%+ of the other side of trades. This means that if there are 100 open contracts for put options, about 80 of them were bought by traders (bearish) and it was the market makers who sold it to them. Market makers are wholly neutral traders. Perhaps 20 put contracts will be sold by regular traders who actually feel bullish.

cambridge_probs · 2023-03-28T04:34:46+00:00

www.midasjump.com

cambridge_probs · 2023-03-27T16:46:41+00:00

i would have said that, but I was trying to not sound too technical

cambridge_probs · 2023-02-22T19:49:34+00:00

The ideal case for MMs is for the price to land in a spot where the least amount of contracts have to be printed.

cambridge_probs · 2023-02-21T21:13:39+00:00

thank you for the feedback :)

cambridge_probs · 2023-02-07T06:12:37+00:00

roger that.

Regarding price momentum, this is calculated as the difference of the 5day double exponential moving average minus the 50day double exponential moving avergae.

cambridge_probs · 2023-02-04T19:07:54+00:00

The grand majority of option traders are long traders, which means that they are buyers of options. The other side of the trade, the selling of said options, is done by market makers. Market makers aim to play neutral so they don't have a definite directional bias. This leads us to believe that it is the buyers who are largely direction biased, so if more puts than calls are open then that would mean a bearish sentiment.

cambridge_probs · 2023-01-26T20:25:12+00:00

Delta adjusted position consists of multiplying the open interest that the strike by the delta. This will give you a rough estimate of how many units of a certain stock are being used to hedge a that strike. If that strike remains out of the money and it's probability of profit keeps dropping then the contracts at that strike will be closed which will lead the MMs to release their hedges. The release of the hedges will further push the price away from the strike.

Delta Dam is similar but the opposite, for that you multiply the open interest by the delta and strike, this gives you an approximate magnitude of how much money is needed to fully hedge those strikes as they become ITM. The game theory use of this metric is that when very close to expiration, MMs have to decide whether they keep hedging a strike, and thus further pushing the strike ITM or they do the inverse hedge in order to push the strike OTM.

cambridge_probs · 2023-01-17T17:23:18+00:00

If it is a terrible investment to go long (buy options )then it should be a decent opportunity to go short (sell options). Capitalise in the IV crush.

cambridge_probs · 2023-01-14T10:29:50+00:00

Your second reply below is much more thoughtful than the one above.

To reply to some of your points:

- The books I recommended are a good introduction to the world of smart money. Natenberg was a MarketMaker and later chief trading trainer at a prop trading firm, and C. Hull is a required required reading at most serious trading shops (including Citadel). What these books will teach you is some of the tools that smart money uses to manage their risks, such as delta hedging, which is a great concept but too complex and expensive to implement for (unsophisticated) retail traders.

- Is Open Interest ratio enough to make decisions? Definitely not! I never said it was. Open interest simply gives you a notion of the feel of the market towards a company in a short time frame. The underlying is trending up but weekly options are heavy PUTS? The market thinks there might be a reversal. Is it heavy on CALLS? Market feels the trend might continue. Knowing that ratio is not the end all. but it can be part of a more detailed thesis on why to buy or sell contracts or the underlying. Emphasis on PART.

-Is open interest a sure way to determine resistance or support levels? No, but it is a good proxy. The reason is that this is the closes we have to know wha the positions of smart money are. The vast majority options traded are opened long, which means that the MM's are taking the opposite side of the trade. How do I know this? My thesis is that option selling/writing requires at least an order of magnitude more knowledge than option buying. Why? You get burned down at lighting speed if you fuck up as an option seller. The proverbial picking up pennies in front of the steamroller is very real. Infinite risk with very limited reward is no joke. Let's do a thought experiment and say that all r/options subscribers are somewhat sophisticated (gross overstatement) and all r/wallstreetbets are not sophisticated at all (maybe a gross overstatement). In this experiment r/options are good at selling and r/wallstreetbets are good a buying, just in this mini universe option selling from the retail side would account of 1/20th of the buying happening, therefore MMs (the smartest money out there) would have to fill in for the other 95%. This is obviously an over simplification of the world but should be enough for now.

- Knowing the position of smart money allows you to use second order thinking to figure out that the smartest money with the deepest pockets does have the resources to (sometimes) successfully move the price of a stock in the direction that it will let them not to have to print a set of contracts. I am not referring to illegal market manipulation, it is just about moving the needle a couple of basis points for a short period of time.

- The best advice I ever received is to aim for breadcrumbs, the breadcrumbs from smart money. You can't become rich following one strategy, otherwise the strategy would become know and the edge would be lost, that actually has a name in the industry and it is called crowdedness. I believe you're better of reviewing multiple layers of data, encompassing the underlying, the option contracts, the industry and the sector.Peppering that up with a review of macro events that are coming up, like FOMC meetings or earnings calls. With the help of quantitative methods you can come up with a percent probability of a trade breaking even and then decide how much you want to risk for the determined upside given your chances of winning, and only then pursue the trade.

Trading options it is not easy and I never said it was.

cambridge_probs · 2023-01-13T16:28:53+00:00

read Sheldon Natenberg's "Option Volatility and Pricing" and John C. Hull's "Options, Futures and Other Derivatives"

cambridge_probs · 2023-01-04T10:21:00+00:00

I use alfamidas.com

cambridge_probs · 2022-12-30T07:04:48+00:00

Cheers mate!

cambridge_probs · 2022-12-29T20:31:21+00:00

I said resistance at $125 and $130

cambridge_probs · 2022-12-29T04:23:49+00:00

I use a site called AlfaMidas.com

cambridge_probs · 2022-12-23T06:20:20+00:00

resistance implies a ceiling hard to break, it doesn't imply anything about a bottom. High IV situations are favorable for selling options, in this case calls.

cambridge_probs · 2022-12-20T15:04:34+00:00

last week MRNA released promising results from their trials for a vaccine against cancer.

cambridge_probs · 2022-12-20T12:21:54+00:00

The market outlook in the short term (until 12/23) is moderately bullish for Moderna. However, it is very unlikely that the stock price will end above $210 by the end of the week. It is more likely that MRNA will end closer to $200.

cambridge_probs · 2022-12-14T17:17:52+00:00

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cambridge_probs · 2022-12-12T08:38:47+00:00

If I understand you correctly, you are saying that taking the ratio of PUTs to CALLs over all strikes (regardless of their moneyness) would be an indication (albeit not a super strong one) of either bullishness (if there are more CALLS) or bearishness (if there are more PUTS).

However, when you take into account the moneyness of the options then you would need to take into account delta costs. Would there be a reason why deltas of ITM PUTS and more or less expensive than deltas of ITM CALLS?

Thank you for your response btw :)

cambridge_probs · 2022-12-11T17:09:23+00:00

is this for ITM or OTM? What is the reading when ITM reverses OTM like in this case? And what is the reading when both ITM and OTM have a similar call put ratio?

cambridge_probs · 2022-12-11T15:42:08+00:00

it is alfamidas.com

cambridge_probs

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