Gamma Bombs All Over the Market Today!

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!

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.

Chart Update

Here’s a follow-up to my post from yesterday: Gamma Signals Firing Again

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.

GME Log Base 10 Scale, 11/2/2020 - 6/3/2021

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 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.

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!

But first, a quick refresher!

Quick 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.

Back to the graphs…

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.

I don’t know how… or even if… these tickers are all connected, but they definitely do share some interesting timing/patterns.

AMC 1/4/2021 - 6/3/2021

ABNB 1/4/2021 - 6/3/2021

RKT 1/4/2021

BLNK 1/4/2021 - 6/3/2021

LMND 1/4/2021 - 6/3/2021

FUBO 1/4/2021 - 6/3/2021

PLAY 1/4/2021 - 6/3/2021

CCIV 1/4/2021 - 6/3/2021

BBBY 1/4/2021 - 6/3/2021

TLRY 1/4/2021 - 6/3/2021

NVAX 1/4/2021 - 6/3/2021

WKHS 1/4/2021 - 6/3/2021

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!

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.