/biz/ - Business & Finance

>>56469872
Ok. the graph is for option dealer gamma and vol control funds / algos. 80-90% of trading done nowadays is basically robots trading and hedging based on rules they made for themselves

much of the intraday market index moves is just option dealers hedging their exposure and volatility control funds increasing/reducing exposure. option dealers are basically the tail wagging the dog at this point because options have become so popular

there are 2 gamma zones for option dealers: positive gamma and negative gamma. which zone they are currently in will determine their hedging / buying / selling behavior:
positive gamma zone = buy the dip, sell the rip. this leads to lower volatility and "return to the mean" effect
negative gamma zone = buy the rip, sell the dip. this leads to higher volatility and a pile-on effect

on the chart you will see the SPX Flip Line - this is the line that separates positive vs negative gamma zones. right now, we are below the flip line, putting us in a negative gamma zone. this means that intra-day, if the SPX is +up on the day, option dealers will likely push it higher (buy the rip), and if SPX is down on the day, they will push it lower (sell the rip). the inverse is true for positive gamma zone

1/? i have to take a shit so i'll continue when i'm done