I'm working on a new script to track the greeks for put spread collars like JHEQX
My thought is to publish a script that can automate tracking of these massive collars and generate greeks, strikes and future volatility predictions. I want to create trading strategies based on selling while negative gamma and buying while positive gamma
I have Black Scholes and implied volatility working close to my reflect my brokers. I will publish the completed script when I get iv working properly.
There needs to be some public light shed on these strategies.
Why?
These strategies will continue to drain all liquidity from the markets until there is a liquidity crisis.
You're Crazy. No Really, Why?
Let me break it down... This strategy is 1 of 3 by a single prime broker. My guess is there are a lot of other big hedge funds doing a very similar strategy. Every 3 months, the strategy is reset. Every 3 months, a big liquidity withdrawal is being made without anyone even noticing. Market liquidity pays for the premium of this strategy.
O'Rly?
This strategy is insurance for 20 billion in assets. The premium for the long put contracts on 20% downside for 20 billion is ~550 million dollars.
The problem. ~550 million in credit sold by market makers (dealers) with no intent of taking on the risk. Market above the short call, it's absorbing QE. Market below long put, 10-20% draw down in S&P 500
To see the results of this, compare what happens when the strategy resets during QE and QT.
Imagine for a moment the trillions in margin and equities being used to draw income, yield and premiums from markets.
IMHO, this strategy is the Credit Default Swap of 2020s
The fed has no choice now except to continue raising rates with relentless QT to reduce its balance sheet.
This bubble may be so big, your children's kids will be paying for it.
I need to call my mom.
Comment
⋅
I need to work on labels.
Blue = Strategy Delta Green = Strategy Gamma Red = Delta Difference from previous close. The amount a MM would have to sell or buy delta for the previous days move.
Comment
⋅
Correction to the conclusion I made about who pays for the strategy.
This strategies premiums are paid for 4 different scenarios:
1) Call ends ITM +0.5 Delta = Quantitative Easing 2) ends even at 0 delta = Break Even. Prem paid for Credit. 3) ends > long put ITM = Buyers Assets losing value ~ the same 4) lower... complete global markets meltdown.
Comment
⋅
Monday -> Friday will be a big tell.
1) Either deltas going from -0.2 to -0.5 really fast. 2) Slow chop Vol compression higher into Friday close.
Comment
⋅
Yesterday was a tense period for markets.
Strength in DXY was weighing on equities and Yields punched the afterburners.
But nothing stops this train from reaching 0 delta by Friday.
Comment
⋅
working on another script that supports VANNA or VEX (vanna exposure).
The current position dealers don't want in the money is the 3580 Put. As IV increased yesterday on news, dealers were selling as the put got closer to In the money.
Last night and this morning is a perfect example of VEX. As implied volatility fell overnight, dealers buy back delta reversing the selling pressure while IV was high.
Comment
⋅
As I review the implied order book I'm narrowing down the flows to follow. To say nothing stops this train was in haste.
Here is a clearer picture of VEX. Implied volatility still has a firm grasp on JHEQX 3580 long put.
Either we start selling off to 3580 or Vanna rally again for market close / Overnight.
Curious to hear if some would consider this market manipulation by makers/whales, or if it’s considered “coincidence”. 😂
With disproportionate capital access mountains can be moved.
SPYvsGME
⋅
@Kody-Rogers, I mean its how the system of liquidity works. Liquidity is very heavily weighted by individual market makers in different ways. I think the market could have taken any one of the 4 options I outlined. A lot of todays rally was triggered by things like the market being overly hedged and Englands QE announcement this morning. DXY and Markets are negatively correlated now and when the DXY fell, Indexes kept rising.
SPYvsGME
⋅
@Kody-Rogers, Markets were stressing on low liquidity since Jay Powell went super hawkish. Shows in the 21D moving average of Gex.
The Fed has not commented on BOE decision today. If I had to guess they eased up on Tightening today as a result of what supposedly happened.
SPYvsGME
⋅
@Kody-Rogers, This distribution chart for SPX returns to prior Day GEX closes. From 0 to -2 previous day GEX means large moves still possible. We'll see tomorrow if the GEX flips positive then you're likely to start seeing a break in selling and drift higher.
Kody-Rogers
⋅
@SPYvsGME absolutely fascinating. I appreciate you taking the time to get this out to me. The insight allows a broadened perspective behind the motivations of the market. Too often I find myself “Complacently Convicted”, ..and we know what happens to a trader with narrow vision.
Keep it up! Let me know what I can do to support the quest of SPY vs GME global DOMINATION through education. 🫡
noparking
⋅
Fantastic work. Have a good weekend!
noparking
⋅
Where does one find the positions of funds like JHEQX?
SPYvsGME
⋅
@noparking, your brokers option chain or search "CBOE Options Quote" and see SPX weekly option chain. On the day of, any live feed detection unusual options activity you will see the pattern of buys and sells throughout the reset day. On open they buy or sell a 0DTE call for the difference to make the reset a 0 delta trade later around 2-4. The strategy option buys to look for is Sell 20% OTM put. Buy 5% OTM put. Sell ~5-6% OTM call. from spot the reset day at 2pm.
noparking
⋅
@SPYvsGME, Thanks, I'm gonna go through your previous posts before I ask anymore questions.
With disproportionate capital access mountains can be moved.