Hey There Income Hunter,

Tuesday was an interesting day in the SPY daily expiry options.

All eyes have been on the crypto crisis and expectations of it hurting stocks. However, as I have been saying the option flows have not shown any signs of a trend.

In fact, the market has been trading in a neutral gamma range with, if anything, a slight bias to the upside.

So, yesterday the daily punters took a shot at buying a bunch of puts in the morning only to have to sell them back out near worthless in the afternoon.

This is a great opportunity to show you the numbers and how you can use these daily flows to your advantage. (I’ll do that in just a second.)

These daily expiry options are certainly an exciting product that offer huge profit opportunities.

You can also look for opportunities to execute credit spreads at the extremes of daily volatility bands.

Or you can use the daily moves to set up further-out expiring trades.

Tuesday’s Trade 

Yesterday’s gamma levels:

Gamma Pivot: 395 – The gamma pivot is the neutral gamma area. Above it, gamma turns positive, which compresses vol and has a bullish bias. Below , gamma turns negative, which expands vol and has a bearish bias.

Put Wall: 390 – The put wall is the largest net negative gamma strike and provides strong support underneath as put holders monetize their trade when its value is optimal. 

Call Wall: 400 – The call wall is the largest net positive gamma strike and it provides strong resistance as the dealers who are long gamma look to monetize their excess deltas gained during the rally. 

The first thing to notice about the gamma levels is how tight the put and call walls have become. This is due to the consolidation in this area.

I call this a coiling of energy from which a new trend emerges.

Let’s look at these levels yesterday …

Notice the market opening above the gamma pivot and holding while spending the rest of the day grinding higher to reach the call wall at the close.

So, with gamma being positive, the dealer’s delta-hedged book gets longer as the market rises. The dealers monetize their long gamma by selling rips to expected levels of intraday vol.

Yesterday’s expected vol was just above 1% and that is close to what the market gave you yesterday.

Plus it was at the call wall, which provides strong resistance.

Daily Expiry Action Very Different 

Now we will take a look at the “game within the game.”

The cool thing about having regular option expiries and dailies is you can play one off the other.

So, if we take a look at the actual volume snapshots intraday, notice the graph below that shows volumes in the 11/22 expiry and all the put volume mid-morning …

Obviously the daily traders were looking for a flush to the downside and they could not have been more wrong … 

Notice that the open interest didn’t change at all. It was all put volume buying and then put volume selling.

Now, with a belief the market would test SPY 400 after opening above the gamma pivot, a trader could have put on a 396/399 call spread for $2. That trader would have made a profit of $1 for a 50% gain in a single day …

Another way to have played it would be to wait to see if the market could rise to 400 and when it did, sell a call spread.

Today we’ll see how that would have worked out.  

All in all, not a bad day’s work …

Bring It Home 

The market is set up for down day today, though it may get a little help from Powell who speaks at 1:30 p.m.

We will also get a lot of data to digest, including Initial jobless claims, manufacturing and services PMI and new home sales …

That is why you can’t just do every trade … you want to incorporate a rules based process like Win The Week that takes into consideration the Fed, intermarket spreads, sentiment and, tactical trader flows input (delta-hedging of positions).

Live and Trade With passion My Friend,

Griff