What is a Put Spread Collar? A put spread collar is an options strategy used to insure underlying assets from downside while limiting upside.
Why would someone use a Put Spread Collar? What is unique about this strategy is the premium is paid for by selling an 5-6% OTM call and selling at 20% OTM put. Selling those 2 options pays for the long put premium.
Why do I care about these Put Spread Collars? These strategies are insurance for over 30 billion dollars of assets. A market maker selling this option strategy will not take that risk so they need to constantly dynamically hedge the risk. Dynamically hedging billions of dollars worth of options will cause considerable flows positive and negative in the market.
What do you mean 'Flows'? It's not really a flow but you need to understand how a market maker dynamically hedges to get a better picture. For the scope of this indicator I will only use "flows" to describe dealers buying and selling. I'm currently working on an indicator to track dealer flows. est. 2-4 more weeks.
When are flows the strongest? Typically flows will be the strongest in the last 3 weeks prior to expiry. Flows will increase and decrease from Implied Volatility depending on gamma direction being positive or negative. Increased gamma is indicated by larger sized bubbles.
What is GEX? GEX is short for Gamma Exposure. When a market maker sells an option they are at a direction risk if the underlying price goes up or down. To remain risk free, market makers will buy or sell the underlying the amount of delta of an options contract. Gamma is the delta Change in from the underlying price moving up or down.
What is Positive and Negative Gamma? Each bar on the indicator will calculate the Gamma of the total option strategy. This is the amount of delta a dealer will need to hedge per 1 point move in underlying. If the overall gamma is positive, the dealer flows are supportive (i.e. Sells highs, Buys lows). if the overall gamma is negative, the dealer flows add to volatility (i.e. Buys Highs, Sells Lows)
Script will be published next week. I still have some issues with fix with implied volatility.
@wolffarchitecture, Thanks. It tracks the historical delta and gamma of the JHEQX put spread collar option strategy going back as far as it can. Not sure when the JHEQX strategy was first used. Could be as far back as 2018 or 2016. The bubbles are the strategies overall gamma. blue=support,yellow=volatility. The size indicates magnitude of gamma
SPYvsGME
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@SPYvsGME, the mutual fund JHEQX goes as far back as 2015
DRDREW2020
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How do I search for and use the Delta / Gamma Indicator? Can It be used for Intraday SPY Options trading?
SPYvsGME
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@DRDREW2020, I programmed the indicator but have not published yet. I still need to correctly implement implied volatility. It could be used on spy and would give relatively the same results but in spy. I'll test it out before I publish it.
@DRDREW2020, Yes, ask away. I use barchart a lot. The good data is pay wall. I created a website to calculate Naive Gamma Exposure and show a 21 day moving average for S&P 500 Gamma Exposure. spyvsgme.com
DRDREW2020
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@SPYvsGME, In trying to understand how dealer hedging and Gamma influence Price action, I am seeing a trend in price action on the day towards the Strike with the Highest Gamma with an overshoot towards the Strike with Highest ratio of Volume to Open Interest. Is that the expected move on the day? SPY Gamma highest at 386 and Volume / OI at 387 QQQ Gamma highest at 278 and Volume / OI at 278 IWM Gamma highest at 183 and Volume / OI at 184 Data from Barcharts