Transcript
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Joe introduces the foundations course, explains his background, and gives the required risk disclosures. He also presents the Option Strike product and the Bookmap package that includes it.
All right.
I'll be muted in the background and whenever you're ready to go.Cool.All right.Welcome everybody to day one of my foundations course with option strike.Um, my name is Joe Poxon I'm the CEO of Fusion Trading and Fusion Analytics.Um, I specialize in dealer positioning, volatility, and options market structures.You guys have my socials over there if you guys want to follow me.Um, and
today we're going to start covering a wide variety of um, different pieces when it comes to dealer hedging dynamics, gamma, zero DTs, and how it can help you guys, specifically those that are trading futures on an intraday basis.Um, before we get started though, um, some general disclosures.All Bookmap uh, LTD materials, information, and presentations are for educational purposes only and should not be considered specific investment advice and our recommendations.Um, trading futures, equities, and digital currencies involves substantial risk of loss and is not suitable for all investors.Past performance is not necessarily indicative of future results.Okay?Now, what we're talking about is this brand new uh, package um, called option strike.This is where we we plot key options level from the SPX uh, with regards to market maker positioning.If you guys are interested in this product, you can find it um, on this new Bookmap product called global premium, which I will pop over here.
So, if you guys go to the website and look at the packages, we're looking at global premium here on the top right.This will give you access to everything that you guys would need in order to trade with this including this option strike SPX gamma levels.It also includes your MBO bundle with your stops and icebergs, liquidity tracker, uh, trader map pro, and market Pulse.So, this is kind of like the the all-in package um for you guys to be able to kind of utilize this and see everything as it works together, including um how you guys would typically trade futures um throughoutBookmap where liquidity is kind of sitting and playing.And this works really well when you pair it with these gamma levels that we are going to talk about and show today.Okay?
The session begins with a primer on SPX options, including calls, puts, strikes, expirations, and premium pricing. Joe explains how options differ from futures and how to read a basic options chain.
So, that being said, let's get into this.
Now, I want to preface all of this that a lot of what we're going to talk about today, for some of you that have traded options, might not be new information.However, because we're going to be talking about delta hedging and dealer dynamics um and gamma and all of that fun stuff that we like to show you in order how you can gain some edge inside of the markets,it is extremely important that you understand how options function and work, particularly inside of SPX.It doesn't matter as much when we're talking about SPY or the Qs or uh retail ETFs or anything with equities.We're going to focus heavily on SPX, and this entire first session will be geared towards understanding puts, calls, uh what how what side the market maker is going to be on, and then how we get through the initialhedge.
Tomorrow, we will cover a little bit more in-depth topics with regards to how those hedges adjust and the ways that you guys can start utilizing them and trading them um on top of Bookmap.And of course, I will show the platform and how it all works as well.So, let's dive in.Um first off, you guys trade If you trade ES, you understand that that is linked to the S&P 500 or the SPX.If you trade SPX contracts, which is what we're talking about, SPX options, that is also part of the S&P 500 index.And the difference with these are they're cash-settled.Okay?So, if you guys have ever traded an option before, options are usually tied to a stock.It's the right or obligation to have X amount of shares depending on how many contracts you've bought, put side, call side, which we'll dive into.
Um but for SPX, because there's no actual tangible stock that you can buy, it's just cash settled, which means you're going to have premiums that are going to adjust throughout the day and when the index actually settles, thatwill be how much you'll get paid out.You don't get paid out in stock or anything else, okay?Now, for the sake of the initial example and then we'll walk through all of these kind of step-by-step.We're going to be talking about briefly about a SPX 7000 call option that would expire today or a zero DTE, okay, that's priced at five points.Okay, so this is this illustrative example that we're going to run through.Okay, four details that you would ever see on an options contract and there's much more, but these are the absolute basics if you ever looked at a chain, is whatever the underlying is.
For our purposes, it's SPX, of course.You have these on Teslas, you have them on Nvidias, SPYs and Qs, but for our purposes, since we're tracking what happens with the indexes, we're going to talk about SPX.You have a strike.So, a strike is based off whatever the price is um for the contract that you want to trade, right?So, if SPX is trading at 7000 and you want to buy something that that's at the money, which we'll we'll discuss in a little bit later, you would buy an SPX 7000.And if you wanted it to go up or down, you'd buy a call or a put, right?And then we obviously have expiration.So, if you've ever looked at a chain, you'll see a wide variety of this information and for the purposes of identifying the specific contract that we're talking about, we're talking about SPX strike 7000.
It's a call option that would expire today with a premium of $5, okay?Now, what does that mean?When we trade SPX options or we trade options in general, there's always going to be a dollar amount that is attached to that contract, okay?So, when you guys are trading ES or NQ, of course, you guys are trading in something we call ticks, right?Where each tick has a specific dollar value.When we trade options, we're trading premium or the value of a contract.It's a little bit different.There's a whole mathematical calculation that goes into this to determine what the value of a what uh an options contract is, right?And it depends on a wide variety of things.It depends on what the strike is, it depends on how far out of the money or in the money or at the money it is, depends on IV, depends on a whole wide variety of things.
So, it can get really confusing very quickly.
The best part is for what we're discussing, you don't really have to get into the weeds too much of understanding the modeling and how all of this is priced.What's important more than anything else is just understanding how premiums and deltas move because that's what we're going to be talking about when with regards to market maker positioning and how market makers have to adjust and hedge theirposition in order to stay delta neutral with these contracts, right?So, bear with me as we get through this.First and foremost for this hypothetical contract that we're talking about, let's just say that it's a $5 premium contract.So, we call it five bucks.Now, whenever you're looking at a contract, it's the right to buy 100 shares for SPX since it's cash settled, you don't have to worry about the contract side or when it comes to the amount of like stock that
you would get.All you care about is what the premium and what it's going to cost you.So, if I wanted to buy one SPX call and it tells me that the premium of this is five bucks, it's going to cost me $500 to enter the position.Okay?If I wanted to buy a put, it's the same thing.It doesn't matter exactly what I'm doing if I'm buying the contract, all I'm going to pay is a simple mathematical equation of how many contracts I want with the premium is at that time and then you times thatby 100.Okay?That's always what it is.So, if you see five bucks, one contract is 500.If you saw six bucks, one contract is 600.Okay?Now, if you guys have looked at an options chain, this is what you would see, right?
Joe walks through buying and selling calls and puts, showing how profits and losses are determined by premium changes. He also explains cash settlement and why zero DTE contracts matter for intraday traders.
So, we have like that hypothetical call that we're talking about, but this is a screenshot from today that I had taken of the SPX options chain on a 0DTE basis.This is where you would see all the information that you would ever need from an options standpoint, right?The bid ask, which is similar to what you guys are trading ES or NQ, right?You know what the value is, whether going to be a hit the bid, hit the ask.You know what the level of ES is and where you're going to be priced.With options, because they're all priced differently and there's of a wide variety of options that you can select, each one is going to cost you something different.And the market maker is creating this market sitting on both sides saying, "Hey, you tell me what you want to do.You want to buy an option?
You want to sell an option?All good.Here's what the prices would be in order for you to get into this position, right?"And then the strike is based off of wherever spot's at, right?So, if spot today was trading at 7730, right?Your at the money call would be around 7730 or 7735.And that's the reference of the contract, right?It's just showing you based off where spot price is, okay?So, that's where you will be able to determine where spot is, what kind of contract you want to get in.And the further away from spot, the cheaper the contracts become because it's more difficult or harder for price to push towards those levels because it needs a larger move.So, that's where the big difference of options is in comparison to what way you would trade ES, right?When you trade ES, you want to get short, you just go short.
You want to go long, you just go long, right?But if I want to get into an option, I now have to think about what strike I want.What's the bid offer on this?Well, how all is this going to work?And that's where the complication becomes, right?So, it's just a little bit different.Now, if I wanted to get into this immediately, I'm going to pay the ask.So, on the 7735s, I'd pay 17 bucks and 70 cents, right?So, for me to buy one contract of that, right?Remember, you times by 100, I'd be in it for 1,700 bucks, right?That's you know, can be potentially expensive, but that's my risk for that option.If it goes to zero, I can't lose anything more than 1,700 if I were to buy that option.If I wanted to sell the option, which is a little bit different, I would be generally hitting the bid here where I'd get paid a credit of 1760, which means they're giving me $1,700 and 60 cents for selling
that contract.And how all of this works and moves, I will explain as we kind of go further, but it's just important to understand the basics of an options chain because these components are what are going to determine the deltaof an option, right?Depending on where it's positioned in the chain, and that's what we care about from the market maker's perspective.If you were on the session last week, we talked briefly about this, but what's really important is understanding that delta from a market maker's perspective is what they're constantly trying to hedge and adjust, right?And we'll dive into that as we kind of go through.But that's why it's important.That's why this matters.We want to make sure that you understand the basics of the option, that way you can understand how they have to hedge the option as price moves.Okay?
So, back to our hypothetical example, right?Let's just say that you bought that call, right?You bought one call says SPX 7,000.You paid 500 bucks.Generally, if you buy a call, the bet that you're making is the index is going to go up or rise.With that rise, the premiums will generally increase for the most part, right?Most of the time they do.And then you could potentially sell that call.So, if you bought the 7,000s, let's say SPX goes up to 7010.Let's say the new premium on that option was seven bucks and you said, "I want to get out."I'm going to sell this option to close.Great.You get the difference of what you paid to what you sold it as, right?It's a $2 difference.Your profit on that one contract 200 bucks.So, this is where the difference is with regards to options than it is with futures.
With futures, you're playing off of ticks.With this, you're playing off of options premiums and how they kind of adjust as the market moves.Okay?Now, what happens if the call loses value?Let's say that you buy the 7,000 call, market falls.Well, the premium's generally going to go down.Now, you're at a loss.So, you be say, "You know what?I want to cut this position.I hit my stop loss.I want out."Great.I'm going to close it at three bucks.Now my loss is $200.So, this is typically what people will do inside of the indexes if they're trading zero DTs.Most of the time, if they're a smaller player, they're just going long a call or a long a put.Now, remember, calls is where what we talk about with calls is you're betting on the market going up.If you're getting a put, you're betting on the market going down.
And then there's a whole wide variety of complex things that you can do outside of that, which we're only going to briefly touch on cuz it doesn't really matter for our purposes with discussing this.Okay?So, as you can see here, right?That's what we're talking about down with the puts.When SPX falls, puts generally become more valuable.When SPX rises, the puts generally become less valuable, right?And most of the people are closing these out before expiration.So, they're trading in and out like you would on ES.They're not really holding it through expiration, unless it's a large size and they're trying to get cash settled, which that doesn't really matter for our purposes.Okay?So, that's that's the way to view this through the lens if you're a trader who's focusing on futures.This is how we as options traders trade the same underlying as you, but we'd be doing it with options versus trading it with ES.
And that's why we have a little bit more that we have to look at.Okay?Now, this is the easiest example to kind of show you, right?If you have a strike at 7,000, right?And a spot price, and you're in a call and spot price goes above 7,000 and you're in a call, you're going to get a cash payout if you held it through expiration, uh depending on whatever the value ofthat premium was at the time.If you're in a put and we're below that strike at expiration, then you're going to get a payday based off what the put is.There's no stock or shares or futures changing hands.That's what we mean by cash close.This is not an obligation for you to buy stock in anything or to own futures in anything.It's purely just a cash-settled instrument, which is super important to understand, okay?
This section covers in-the-money, at-the-money, and out-of-the-money options and how those states affect delta and gamma. Joe emphasizes why expirations, especially zero DTE, are central to dealer hedging behavior.
Now, a lot of the stuff that I just talked about on that options chain, and this is extremely important to understand with regards to deltas when we get into delta hedging, is whether options are in the money, atthe money, or out of the money.When you trade ES, the price is the price.When you trade options, you can choose where you think price might go to or where you want to position yourself.So, let's say that you believe that the market is going to go down significantly, right?You just this is how you feel, you see it in the tape, whatever you're looking at, and you decide, okay, SPX is at 7,000.I think we're going to 6950.You can go deep, what we call out of the money, buy a put cuz you're betting on the long direction of us going lower, and pay less of a premium than when you than you would if you were
at the money or in the money.Okay?That's an important distinction.The reason it matters is if you go and you look at like an options chain like we had before, right?There's going to be a couple of tables on here that you can't see, but that will have your Greeks.And that's what we are going to be talking about the most specifically tomorrow when we get into more of the delta hedging, right?And the delta of these options changes depending on whether you're in a call and that call is above or below spot price and a put and whether that's above or below spot price.The deltas change, right?And while I should be able to show a better example of that here in a second.Okay?So but this is an important concept concept to understand because the further out of the money something has, the less delta it has.
And if it has the less delta, the less gamma it has.And what we're talking about here as we we mentioned last week is we are discussing purely how delta hedging uh affects the markets and gamma being the speed of that delta hedging.So you have to understand the concepts of in the money, at the money, and out of the money options in order for you to truly understand what is going to happen with delta hedging.Okay?Now, the other piece of this that is even more important is understanding expirations, right?You guys in ES, right?That trade ES, you have what we call contract rolls, right?Contracts roll over, they adjust.We have in the options space days to expiration, right?Which tells you how long you have until that option expires either in the money, out of the money, or worthless.Okay?So if I say that I want to be on a swing trade for the next week, I might buy an option that's 7 to 8 days out.
I have 8 days until it expires, right?And I don't want to hold the risk, let's say, of holding ES for 8 days.So I can buy an option, have my fixed risk, and I can play where I think the market's going to go.Now, as we get closer and closer to expiration, the value of that option changes dramatically.The closer we get to uh to as the zero DTE world or the day that it's going to expire at the close, the value of that option could move drastically, right?And that's a function of gamma and delta that we've we've discussed previously, right?So, that's why we focus so heavily on zero DTE options, in particular for those that are trying to scalp and play intraday markets, is because on a zero DTE basis, um options that are uh zero DTE carry themost gamma, right?
Because gamma is always going to be the largest closest to the expiration at the at the money strike.And we'll cover that in depth tomorrow when we start diving more into all of that.But it's an important under understanding why we care about these upper these uh expirations because something that is five DTE out or six DTE out is not going to carry as much weight on what's going to happen onthe indexes from market maker hedging flows than a zero DTE because the zero DTEs expire today.So, they have to hedge it today, right?It has to happen as the market is moving.
Joe explains the four basic option order types and the difference between buying and selling premium. He then introduces spreads, capped-risk structures, and why large players often use them instead of naked positions.
All right.Now, this is where we get a little bit more complexity, okay?But it's incredibly important to understand because for the average person, they might just be going long or short an option.Mostly just long options like we said before.But the big firms or the big players inside of SPX, they are typically always doing things called spreads.And it's important to understand that because spreads have offsetting delta and gamma depending on how wide they are.So, there's a very important concepts that you have to understand when we start talking about this uh when it comes to the gamma dynamics that we will dive into.And that is the four orders that you can place inside the option space, okay?So, if you want to go long an option, right?You just want to buy a put because you think the market's going to go down or you're going to buy a call because you think the market's going to go up, you're going to do what we call a
buy to open order, right?So, that means you're buying to open it and you now are going to own it.Once you want to get out of that order, you would put in a sell to close.You're closing out the order, it neutralizes your position, you sold that contract back, you now own nothing.It's no different than buying five ES and wanting to go long and then selling five ES to close out your position.But we have order types that we have to specify what we're trying to do because and the biggest difference here between this and futures, is because we can also sell options, like I mentioned earlier.We can come in and say, "You know what?I don't think that the market's going to go to this level today.I want to be a seller of that option.I want someone to come and buy it from me.
I'm going to take the other side, and I want that option to expire worthless, because I'm getting a credit."So, think about any odd time you buy an option, you are now long delta or long gamma, right?You are now buying something where you care about what the value is, cuz it's what we call a debit.It's coming out of your account.If you short an option, and you sell it, you're getting the opposite.You want that option to expire worthless.You want the decay of that option, because you're trying to collect premium.So, if I sell the option for a thousand dollars, I'm going to get a thousand bucks for selling that option, right?Now, if I sell to open, right, to put the position on, and I want to close it, then obviously I have to buy to close.So, it's important to understand these things.
You don't need to worry so much about the orders if you're not trading options, but it's important to understand that we can do something a little bit more in options, which is selling the premium.And the reason being is it is probably the most popular way for the firms and other players to sell.You guys, I will have examples to show you when we get towards the end of this on the actual books, but every day someone is coming in deep out of the money, right, further out, low delta, selling premium,where they're risking 500, 600k, um or risking more like 5, 6 million to make like 500,000 dollars, right?And it's an incredibly common.You'll see incredible size.And why that matters for us is because it gives you really good levels to play off of.But, it's important to understand what they're betting on, right?
Because if you don't understand that their bet is we don't go there, and they get a full profit, and you misinterpret that for they think we're going to go there, then the way that you would trade this wouldbe the opposite of what you would expect.So, that is what makes the so important.And then on top of it, the gamma implications change depending on whether you're selling an option or buying an option, okay?Which we will dive into more in detail tomorrow, okay?So, when I mean when we say these words, right?These are important like glossary terms cuz I repeat them a lot.If I say you're long an option, you're talking about buying it.You're playing it for a directional move for the most part.So, if I buy it open one call, I'm long one call.If I buy it open a put, I'm long one put.
For our purposes and the way you trade, that's what you'd be doing.But, for others that come into the market that have very large books, they might be doing this as a hedge.So, it's not necessarily like a bullish view.The reason I say that is because people will mistake long gamma or short gamma on a book as a directional bias.And you'll see what I mean as we keep going, right?But, you have to understand that sometimes they might just be hedging something, right?These books have billions of dollars in them.They might need to hedge something in the shorter term.Do we care what what they're doing and what their bias is?No.All we care about is what that position creates from a delta hedging and gamma perspective, right?But, it's important to understand the basic concept of longing something like longing a call, longing a put.
All right.Now, this is the example that I should that I explained earlier, right?If you buy that one call to go long and you want to close it, your net position is zero, right?So, just because you sold it does not mean that you just became short.And that seems obvious, right?To anybody who's ever traded an option.That's an obvious thing.What doesn't become obvious is when you start looking at the market maker positioning is you will see it's it's a full book of net position from every player in the market.Every player's there.They're trading a bunch of things.So, you might see a lot of flip-flopping around between like the gamma bars, the net positioning that's coming in on either side.And a lot of times people will make this idea of wow, like someone's getting in and out of positions or someone's doing this.
It's just net.So, if I wanted to come in, let's say, and I want to buy 500 calls cuz I think that I want to go long.And then let's say Bruce wants to come in and says, "I don't like that.I think we're going to go lower."I'll sell those calls to you.Right?They cancel each other out.Right?So, that position now, even though I'm long and he's short, they completely cancel it out to the point where the market maker, it doesn't matter.Right?They don't The market maker doesn't hold that position.Nobody holds that position.But, and you're going to see it on the bar.But, someone did make a bet that I'm going to go long and then another person made a bet that they're they don't think that we're going to go much higher.Right?So, that's an important distinction to have when we talk about options.
Okay?Now, the same thing happens when we short options, like I said before.If I go and I want to short an option and sell it, the same thing happens.I now should have a short call.Right?I own it.The difference between buying the premium or going long the call, like I said, or selling it is I'm betting on something different.If I short a call, let's say it's at the money or out of the money, my entire bet is we don't go there.Okay?Here's the problem with that, as you saw in the earlier example, if you short something or if you go long something and then it doesn't do what you want it to do, you obviously lose money.Shorting a call um or something we call naked, which means it's not spread, it's just by itself, opens you up to unlimited risk.
Unlimited risk, okay?And the reason being is if I sell one call, right?It's SPX 700 or 7,000, right?And now we've now gassed up, like the market starts rising, we catch a bid, it doesn't matter why, it's a catalyst, doesn't matter, and we go up to 7,100 and I'm still holding that call, the value of thatoption will just keep going higher and higher and higher and higher until while the market keeps going up.It doesn't matter.And my loss can be 100%, 200%, 300%, 400%, 500%.It doesn't matter.It can go into the point where my entire position gets blown out and I blow up my book.Right?So, that's the difference with selling options and where the risk comes into play, which is why people spread them, which we'll get into in a little bit.Okay?But, that's a really key distinction because, again, as I mentioned, when you sell an option or you go long an option, the gamma implications change um a little bit differently than what you would do if you're just buying
or going short like an ES position.Okay?And this is that example, right?
So, you guys can see it a little bit visually.I sell an option and I want to buy to close it at three bucks, right?I sell it at five, buy to close it at three.Great.I made 200 bucks for that option decaying or the market going in the opposite direction than what the other person on the other side bet on.If it goes against me, then I lose it.And if it keeps going against me, that's when you get into that hypothetical unlimited loss because you are short the option, not bought it.Anything you buy, the max loss you have is whatever you paid for it cuz the only thing that option can do is go to zero, right?Which is why a lot of people who swing would rather swing in options than swing on ES because even with ES, that technically, while it's not unlimited, there's a lot more movement that you can go to with a
lot more tick points that you're going to potentially lose your position on.It's not a fixed cost per se like it would be in the option space.Okay?Now, with that hypothetical, you know, situation that we're kind of talking about where you have the unlimited risk on a short side, there's another way that people play inside SPX, and this is the most common, right?These are the two most common things that you will see inside on Book Map, and it's important to understand the distinction.And these are spreads.Okay?Very important that you understand what a spread is cuz it will be the number one thing that you will see, and everything offsets each other in some capacity.So, with because of the potential unlimited risk on the short side, which I'll show, this one is a buy to open and a sell to open order on the call side.
So, by if you look at this option and you're looking at how it works, right now it says buy to open one SPX 7000 call, sell to open one SPX 7010 call.This is a bullish bet in a vacuum.I am betting that we go higher, but I want to cap my risk on this trade by selling a further out of the money leg.And we call this a multi-leg trade, okay?When you get into the world of options, in particular in SPX, this is where things get incredibly complicated and muddy, right?Because people do a wide variety of things.We have iron butterflies.We have complex four-leg orders.We got uh calendar diagonals, right?Because of how all of this is priced, you can get very cute with the options and how you sell them.The beauty for us is I don't care what their intent is.
I do not care at all.All I care about is where the position is sitting and how large that level becomes, because that's all I care about are the levels.Cuz I know, as we dive into this, that market makers have to are going to be on the other side, and they're going to have to adjust their book accordingly, okay?So, this is one of the most popular ones.A capped fixed upside bet would be this example here from a spread, okay?Buy 7,000, sell the 7010.This is what that looks like, right?If I buy that call, and I pay five bucks for it, and then I sell the other one, and I receive, my net cost is now three points or $300.My maximum loss that I could take is 300, but it also caps my profit from whatever the short leg is at $700, right?
So, this gives you a very fixed window of risk, where you know your max loss, and you know your max profit.That's why a lot of folks will do this, cuz one contract at the money on SPX can cost you two, three, four thousand dollars, depending on where we're sitting, how early it is on the day, and what IVis telling you.Okay?So, that's why you will see a lot more of this.So, if a book or a large firm who has to hedge something wants to come in, and they don't want to just go flat out long or flat out short, they'll do a lot of spreads, right?So, they can fix get a cheaper cost for their bet, and because of the way that options are priced, they can usually minimize what their potential maximum loss would be if they're wrong on that hedge.
Okay?
The discussion shifts to sold credit spreads and iron condors, showing how these positions create important levels on the book. Joe explains how market makers sit on the other side of most meaningful SPX flow.
Now, this is where we get to the example of the unlimited uh loss, right?So, this is by far the most common thing that you will see in Bookmap.And these are sold credit spreads.It got really popular over the last like two to three years.There was a guy, slight story cuz this will help you understand what he was doing, that would come in and sell what we call an iron condor.Okay, all an iron condor is is two legs or four legs really, but you're selling to open a short put spread and you're selling to open a short call spread on opposite of where the the spot price is.So, on each side you have these two sets of orders.And what all they're betting on is that we sit in a range.And if we sit in a range and we don't tap any of their levels, they get max payday.
That's the entire bet.What they don't care about direction, they don't care what happens, all they care about is we do nothing.Right?So, they're not going long, they're playing for a range or a choppy session and they're collecting premium.Now, because they don't want to go naked in this position, which we talked about as to why, cuz it's unlimited risk, they spread it in the same way that you saw in this example where they bought a spreadfor the cap to upside, they're going to do the same thing, but they're going to cap what it could be from a risk from the short side.Right?So, they get that credit.If it goes against them, they now know what their risk is in comparison to the premium that they received.And this creates incredible levels to play off of, okay?Now, I'm going to show you one of these.
All right, and this is getting a little bit into the gamma dynamics which we'll touch on.But this was a screenshot from last week from the current book map profile that we're looking at, okay?So, on the right side on Book Map on option strike, you'll notice you have all these green bars, right?And I know we haven't talked about gamma, but don't worry, we will get there.Right side is all positive gamma.Left side that you see on any of the strikes are negative gamma.Right?When someone comes in and sells a spread, they are going to have bars that will look like this, depending on what kind of spread it is.And we'll talk as to which side is which here in a second.But you'll see these offsetting five point or 10 point, it depends on what they're selling.But most of the time it's a five wide spread that they're going to sell.
So, they'll sell this in this instance, sold the 7,700 by 7,695 spread.Well, what happened when we got to that spread as you can see?We just bounced around it, right?We went towards it and we just pound a bounced around it.And that's positive gamma doing its thing, where dealer hedging is constantly having to play against itself and we'll explain why as we go through.But, it gave you a great level to kind of play off of or look at.There's other times where it becomes a lot cleaner.All right?And I posted one I think in the the Discord last week, but there's other times where that level is so clear that you could look and see, "Hey, am I starting to see people starting to bid this upor absorb the selling pressure down in this level?"And then I know that market makers now have to trade against that level.
Now I have a great place for me to potentially gain some edge and be able to bounce or play higher.So, if you're especially if you're a a um you know, scalper who's looking for 5 to 10 points on ES.Right?That is why we care.We care so much about these because they come in.When they do this, we're talking 5,000 to 10,000 lots.That's extremely large size.That's millions and millions of dollars that they're betting, right?5 6 7 million to collect like a mill, right?So, that's incredibly large size.That's why we care because we know that those levels, if tested, will be relatively strong because of what dealers have to do when we get around them.Okay?That's why I'm mentioning this so you understand it cuz it will be the most common thing you will see.You will see way more sold credit spreads than you will see long positions coming in than you will see um you know, long spreads coming in.
It'll always always have this and even today we had a bunch, right?Okay?So, this is why we talk about this, right?This is an important concept for you guys to understand.Now, that's the basics of just options on SPX, right?And I kind of flew through it a little bit, um you know, because at the end of the day all that really matters is that you can truly understand what a put is, what a call is, and thenunderstand the basics of some of the Greeks.And then understand even just what a basic spread is, right?Because that's going to help you understand where positioning is going to sit on the book from a market maker's perspective and how they have to hedge.And what do I mean by that?Well, if you're a market maker and you're creating that market, remember the option chain I showed you before, right?
We had the bid and we had the ask, right?That's what the quotes are.So, let's say for our example here, we have the bid of 490.That's what they're willing uh the market maker's willing to buy from you, so you're willing to sell.The ask, that's the market maker's position that they're willing to um sell to you, right?Or you to buy.The market maker in SPX is usually on the other side of a trade, right?So, you have to realize the way options markets transact in general.Okay?Inside of let's just say a Tesla or an Nvidia or a spy, you could have a dealer-to-dealer trade where it's a market maker to market maker.You could have customer-to-customer.Remember in that example I said earlier, I wanted to buy something, Bruce wanted to sell it, they'd pair us together, they'd take the spread difference.
That's how they get paid.So, whatever they kind of whatever the transaction fees I should say, right?That's how they're going to get paid.That's the point of a market maker.They are trying to create a market and they create money they make their money off the fees cuz there's so many options being transacted.But, it's important to understand that not every option that gets transacted is going to be from a market maker to you.It could be a customer closing the position.Remember when I said we had all those orders, sell to close, buy to close.Well, if I'm closing the position, somebody has to buy it, right?It's a two-way market.It does as I don't just get to get rid of it, right?There's always um options that are being transacted from all these different counterparties.Now, that distinction's important because what happens on the equity side, because it's so liquid and options are a little bit cheaper depending on the name, right?
There's a lot more muddiness to what is going to happen in the underlying.In SPX, it's different.Most of the trades that come through on SPX are being created by a market maker.In particular, the ones that matter, right?Like one lots, two lots, probably a different story.But, when we're talking those 5,000 lots or those 10,000 lots, the average Joe that is trading SPX is not going to put that kind of risk on and sell that to somebody because it requires too much hedging oradjustments of the book, right?So, the market maker is typically on the other side.This is where we start to get into dealer dynamics, which is where you're going to find vast majority of your edge when utilizing the software, okay?
Joe clarifies how dealer positioning is inferred from customer flow and introduces the key Greeks, especially delta. He explains why delta is the main driver of hedging and how gamma affects the speed of that change.
So, that's why we started with that base level.It's important to understand puts, calls, sells, and buys because if you don't know what side the customer's on, then you don't know what side the market maker's on, and that changes the dynamics dramatically.Okay?So, in this example, let's say that I have the SPX 7000 call.I want to sell it.I want to sell it.Market maker is going to say, "Okay, great.I'll buy it from you for $4.90."I sell one contract, I make my $490, I just watch now what happens, and I see what happens with that price.The market maker, right, is on the other side because they bought it from me.So, now they are long the 7000 call.Same thing would happen on the opposite side.If I wanted to buy it, they're going to say, "Great.$5.10 per contract.
Great."I buy it, I'm up $510 is what I'm paying for that one contract.The market maker is now short that contract on the other side.That is a very important distinction when you come to looking at the positions, right?Like when we're looking at this, we're looking at the spread.The market maker in the green here, this is long gamma or what we'd just call being long that strike.So, when you see this green bar on the 7700s, that means that there is a ton of positive gamma sitting there, which is coming from someone who is uh short the calls or short the puts in this instance,right?They short the puts.So, the market So, the person came in with a spread, said, "I want to sell a 7700 by 7695 put spread."Great.I have to sell the 7700, I have to buy the 7695 as the customer.
The market maker takes the inverse side.So, when you look at this, you can tell usually based on the size of the bars, and you'll get better at this as we talk about it, that, "Wow, someone came in and sold a a put spread downhere.Market maker is long the 7,700 put, short the 7,695 put.And that is a very important distinction when it comes to this, right?Cuz I don't care what the customer's intent is.I only care what the market maker is doing and what positions they hold.And you'll you'll see as we keep going through the foundations course.Okay?Right?So, as I just explained, sells to open an SPX 7,000 call, dealer buys it, right?The value of that will change.SPX rises, the call itself will generally gain value.If the SPX falls, the call generally will lose value.
And again, we don't care about the customer.So, pop them out.We care what the dealer owns.So, now we know that the dealer is long that call and SPX goes up, the call is going to increase in value.If the SPX goes down, the call is going to decrease in value.And that's where the hedging part starts to kind of come into play.Now, there's a lot of Greeks in options, right?Remember how I said this is where people can get really confused.The goal of all this is not to teach you the ins and outs of Greeks.Right?The goal of all of this is to just get you through the bare minimum of understanding what delta is and how it works.And what gamma is because gamma affects it.So, if you look at how options are priced, you have all these first order Greeks, delta, theta, vega, then you have IV that determines the price of the option, right?
It's not just a willy-nilly thing where the market maker says, "Eh, I want to charge 17 bucks for this."There's a whole pricing model that goes behind it and it's all automated, right?It's an automated process across the board.Okay?We are going to focus exclusively on delta and the delta second order Greeks, which is gamma, vanna, and charm.But for our purposes, we're going to focus on gamma.Right?But, it's important to just to understand the absolute basics.So, theta is how premium responds to time passing.So, remember when we had that example of someone selling a spread?Their bet is theta.They are betting, if they sold the spread, that time is going to pass so much and we're never going to come close to those levels that they sold, that the uh the options premium will expire worthless and theyget their full payday.
They're betting on theta, right?That is what they're betting on.Um Vega is just how options prices jump based on IV.Today's kind of a good day for that for you to basically understand it only because we had FOMC, right?So, typically um when people want to get a lot of options or they want to buy and you see that rapid buying and inside of the option space, you'll see IV increase because people are bidding it up.You see this a lot into earnings where IV kind of explodes and then people talk about things called IV crush, right?That's all this is is you have so much IV built up cuz there's so much demand for the options that the options premium itself starts to explode in value, right?Which is why I said generally things would kind of change.So, these are the main Greeks that we all would look at and every type of trade that you put on is different.
But, if you're just focusing on the long side, you're buying puts and calls, the only thing that really truly matters to you is what the delta of that is um more than anything else um and what gamma isgoing to be.And when we're talking about it from a market maker's perspective, if you're the person long that, then it changes a little bit cuz you need to be right before time passes.Um and once time passes and you you have an option, it can go to zero even though you got your move, which we won't really dive into that too much, okay?So, all delta is how premium responds or price responds when SPX moves, okay?So, the delta of an option is going to be the main thing that will tell you what your premium will increase or decrease by for every $1 move in the underlying.
Gamma is like your speed or your acceleration.It tells you how fast the delta is going to change and that is what is extremely important for our examples here, right?Because gamma gives you the acceleration piece of delta.So, you know if there's a lot of gamma somewhere and you know that dealers are owning a lot of you know gamma or delta on their books in a certain area, you will know that there's a potential hedgingresponse that they have to do, which is what we're going to get into now.Okay?So, first-order Greek, delta.Okay?This is the most important one to truly understand first.And what delta, as we said, is just how much an option's going to change based off a one-point move.Okay?So, if I buy an at-the-money call, typically at-the-money calls are like 50 delta.Okay?And the delta ranges go from 0 to 100 or one, I should say, right?
But we whenever we talk about this, we're always going to say like it's 50 delta, it's 35 delta.We don't say it's 50 cents delta or 35 cents delta.It's just 50 delta or 35 delta.Okay?Same thing on the other side, 65, 75.And wherever you're at from a chain, from in-the-money and out-of-the-money, affects what the delta will be.Simply put, a 50 delta call, SPX goes up one point, your gain for one contract is 50 bucks.If it was a 35 delta, right?The gain that you would get is 35 bucks.Now, the higher the delta, the more expensive the option for the same reason that we showed here on how Greeks are.If the delta's higher, the premium's higher.Right?Same thing with theta and vega, right?So, when we do see people buy these cheap options where it's a four delta, well, there's a reason that they're cheap because no one's betting on that move to happen, right?
So, you have cheap options cuz the delta is so low.Right?So, that is what we're looking at with delta.And this is the crux when we get into delta hedging and dealer dynamics.
This chapter explains how dealers hedge with futures to stay delta neutral and why changing spot prices force constant adjustments. Joe uses examples to show how positive and negative gamma affect whether dealers trade against or with price.
All right?Understanding how deltas move, cuz they adjust based on spot, gives you what the hedging mechanism is going to be and where you can take advantage of it inside of the platform when you're trading ES.Okay?So, something that I haven't mentioned, but I think you've probably ascertained by now, is if a market maker's main goal is to make money off of fees, why would they want to have any directional exposure?And I'm not talking from what they have in their books.I'm not talking on what they're betting on in the markets.I'm truly just talking about, in a nutshell, if they are just creating the market, right?They're just market making.And market makers and dealers are the same thing, right?It's just a different way to say it.I call it dealers just out of ease, but market makers and dealers are the same exact thing when we talk about it.
So, what does that mean?Well, if they come in and they're taking the other side, right?So, long calls, they are long the calls cuz I sold them to them.They have that positive delta attached.Well, they don't want delta exposure.They don't want to be long in the market.They just want to be delta neutral.So, what do they do?They offset it.And how do they offset it?They short futures, okay?Right?So, they're going to offset the delta with futures that equals the same amount or same type of delta that you would get from there, which is just a basic math equation.That way they can get as close as possible to net delta or near zero, right?It's all about being zero.And that's the beauty of what the market making people do inside of the book because we know as the deltas change that they have to constantly re-hedge this, right?
So, think of it this way.The initial position gets put on.They're going to go hedge in the futures market.We'll just say immediately, an instant hedge.And again, this is a model, right?We're talking about a model.We don't know with the not 100% certainty that they instantly do all of this and that.But as you see it play out, it'll be pretty pretty obvious, right?They're going to go hedge it.They want to be delta neutral.Now, let's say that they go ahead and they offset this these long calls that we've been talking about at 7,000, right?They short the futures and the market does nothing.And we're going to take out all the other options premium stuff that we're talking about.We're going to take out We're going to take out the vega.We're going to take out all of that.We're just going to say in a in a vacuum, they own this delta and they now have offset it, and the market does nothing for the rest of the day.
They don't have to do anything in a vacuum for this particular trade, okay?Just this one trade.They don't have to do anything.They just let it go and it doesn't matter.But we know that's not how markets work.Markets are constantly trading.They're constantly going up and down.Well, um we know from this example here, right?With some call deltas and what we saw on a chain, that the further out in the money an option is, the larger the delta is.The further out of the money an option is, the lower the delta is.So, where these positions go determines how much delta hedging they have to do.And there's a chart in here that I can show you guys with the delta change from spot.So, on the right side is SPX price away from the strike.On the left side bar, right?
The Y axis here, you have call delta.It can only go up to zero and it can only go It can only go down to zero.It can only go up to one.So, as the market moves, that delta trades on that line of that particular option.Okay?So, if we go up, delta goes higher.This is a call, remember, right?So, we're betting on the market going up.We go down, delta goes down.Well, what happens if they have that initial hedge?Now, the delta changes.Well, now there's a delta imbalance, right?They have a delta imbalance on their book and they have to change that hedge.And that's what we're going to discuss a lot more tomorrow when it comes to the dynamic hedging.But that's what we're getting at.That's the point of all of this on why we care about where market makers are positioned, okay?
Right?So, this is what it would look like, right?One long SPX call, short one ES future, nothing.No dollars being changed, right?That's what we're talking about the 50 delta.Okay?You guys seen this?Now, this is where we're showing the different deltas, like in the money calls.Again, these are call sided.If this was a put, these would be flipped.Calls The puts money-ness would be different where um they'd be on the opposite side of all of this, right?So, these are in the money calls if we're below spot, out of the money calls if they're further away from spot, and you can see the corresponding deltas.Now, these are just These are just illustrative.It's It's going to dynamically change, but this is kind of how it would look, right?So, the delta is going to change based off of how close spot price is.
Right?So, let's just say that you're in the 70 tens, right?You bought these 70 tens 35 cents, right?So, you bought one of them.You're in for 350.Market goes up to 7010 from 7,000.So, you move 10 points.That delta of that call, in theory, would now be worth 50.Right?It's a now a 50 delta call.The delta just increased 15.That's how you get your payday.That's how you get paid in options.You want to see the delta increase as the market goes up cuz you want your premium to increase.But, that imbalance that we just had for my calls creates a short position on the market maker's book when it comes to their delta that they have to hedge.That's why we care so much about delta more than anything else.Okay?So, let's look at this with very simple math, right?
In that same example.Call delta 50 cents.SPX has gone up.It's now 60.Their initial sensitivity to one point of SPX movement was 50 bucks, right?That's the 50 delta.Okay?Once it moved to 60, we now we know that it's a 60 delta call.The initial hedge they put on that ES short was 50 bucks to net them zero.They haven't changed their hedge.So, now they're in the hole 10 bucks.Right?And it might seem like, oh, they've made money.That's not what they care about.They want delta neutrality.They don't want exposure to the market when it just comes to market making.So, now they have to adjust that hedge.Okay?So, that's what we're discussing with a lot of this positioning, right?Is understanding based off of the books that market makers take on, the positioning inside of the book.
Where are they positioned where I know they have to hedge.That is it.There is nothing else about this except delta hedging, right?And the bigger the position, the larger the hedge.And that's what gamma is.And that's what we will dive into in subsequent sessions, okay?Right?We'll talk about how that rapid explosion of gamma is going to change delta so fast that there has to be a hedging response in order for them to keep that delta neutrality, and you can take advantage of it,right?You can take advantage of it, and you can see it inside of the book, right?So, even now, if I load up Bookmap, and we go here.We have option strike on here.Look at it.I mean, I can't even make it up today.This is perfect.Look at 7725.This has been a large level all session.
It's been there all session since this morning.We can't break it.Right?Why?There's a lot of positive gamma sitting on this level.If And again, we haven't talked about this, but in positive gamma environments or positive gamma bars, right?They have to trade against price.So, if we're selling into the level, in particular if we get some speed, right?And we're selling into it, they have a hedge response at those large levels to buy, to go against the trade.And that's why you keep seeing these bounces.Right?Bounce here.Bounce here.Bounce here.Another bounce here.This is the done even before, going back and earlier this morning.Bounce here.Another one.All day off that line.That is now the most important important level in the book for today.And it doesn't matter what you see pretty much anywhere else, because the hedging response will be so much that they have to adjust their their ES positions, and then you'll see it in the futures market.
Okay?Right?So, that's why we care.And you're getting to see it here in real time.This is what those bars do.This is what they mean.And we'll dive into why in the later sessions, right?We're going to go through how they dynamically hedge.We're going to talk about the different kinds of gamma.We're going to talk about how GEX changes as positions change.And for you to understand what is a potential wall where they have to you get support or resistance, and what's a potential acceleration point, because not all gamma is equal, right?You have positive and you have negative.The negative side can be a springboard for a momentum plays.So, if you're not a scalper, and you want to ride momentum, negative gamma is your friend.Okay?
Joe answers questions about spreads, relevance of gamma levels, and how to interpret the bars on Option Strike. He also shows how large 0DTE activity and dealer hedging can create sticky price action or momentum.
Now,
that is point part one of what I want to discuss today, right?We're We're in this 50 minutes already, so what I would like to do is if you guys have any questions regarding what we just discussed today, and I will dive into, like I said, all the other fun stuffin these subsequent sessions.Um Now's Now's your chance, right?This is This is what I want to make sure you guys understand because if you can't understand the basics of options and where the delta is sitting and how market makers are on their side, then the rest ofthis will be a little bit more difficult to to grasp.But I promise you, if you stick with me and you get through the whole thing over the next couple of days, this will be super simple to the point where you're going to be able to look at a
bar on Bookmap option strike and understand what the potential response is going to be.And then you won't have to overthink all of this.But deep down, you'll know what is happening in the underlying and it'll help you make better decisions as you're trading futures.And I believe you guys can ask questions if you have any inside of the special events chat here.
Don't be shy.There's no dumb questions.Trust me.And if you guys knew all of this, that's great.That's awesome.Like that's the point of all of this.
Joe, I I had a question
for you.Sure.
Um I I'm wondering like if you take a look at the uh price action today and if you can relate to the spreading that you talked about uh and then look looking at some of the other strike pointshere.Uh do you see some sort of hedge uh or um spread in there that you can explain?
Yeah.So, let me go and grab this real quick.Um That 70 whatever line is not a spread.It's just a straight-up uh position.But there are spreads that were sold today.The first one is down at 60.So, down here, way down below spot price, and this will be a good example.There is a spread seller here down at 7660 by 55.Now, because we are so far away from that from spot, there is virtually no delta and virtually no gamma.So, these bars are going to show you nothing, right?There are is a position sitting here of a spread seller.As we go if we did sink and went lower, these bars would start to expand and you'll start to notice it a little bit easier for where the spread sellers are at.But even that, like that's just a common thing that we see that you will trade a lot of levels off of.
When we get these other ones though, like today, where this is not really spread, there was some kind of spreading with some longer puts with the 30 s, but what we care about is really just the large sizeof the positioning.You know, this is just sitting there and we keep kind of testing it and we can't test it.So, now you know your break point, right?If we get below this and hold, there's potential for more downside and this probably becomes resistance.If we we keep bouncing off this, this is a great place for you to keep going and understanding, you know, that this is your support level for the day.But spreads you'll notice a little bit earlier in the session when they come in, um depending on far away they are from spot.Once we get closer to the end of the session like we're doing now and that gamma goes away or that delta goes away cuz time has passed and we're so far away from it, you won't really see them
and they're they're kind of irrelevant, right?There's no relevance unless we're near the level, right?Gamma in itself is not a directional tool despite what anybody might tell you.
It looks like Corey has a question.
It was just a statement.Said it was extremely helpful.Oh, great.You trade options.Awesome.So, hopefully you learn something on the option option side for this, too.The relevance.Okay.So, the relevance of all of this is just the hedging application.So, when you see everyone talk about gamma and they go, "Oh my god, look at all this positioning there."The gamma has to be relevant enough and there has to be enough delta on the line for there to be a hedging response.When we get into this in between, right, the in between of things, it doesn't matter as much.Okay?Um because those levels don't have any type of real significance.You need to wait and be patient for the larger levels to come in.But, on top of that, some of these will just create sticky price action.So, if you guys haven't noticed what, the last 2 days, if you've looked at option strike, and I can't go back and show you, but if you guys have looked at option strike the last couple of days, you
will notice in the back half of the session.And again, we had FOMC today, so this is erratic.But, you have noticed that for basically the last 3 hours of each session until we got towards like end of day liquidity and mock, we've sat sideways chopping around.If you were looking at option strike during that time, you would notice a ton of positive gamma sitting on bars.What we'll talk about in subsequent sessions is how that gamma creates such sticky price action, cuz they're constantly trading against price, that it quenches volatility and the ability for price to move.So, if you were a trader, and you're like, man, I really want to, you know, I want to get in this afternoon session.I want to go long here.I like the price action.And you don't know where all the dealer gamma is, you would have no idea why price action is sitting sideways and sticky.
There's so much hedging that goes on inside of SPX, and it is one of the largest instruments when it comes to that hedging, especially in 0 DTE world, that it takes over a lot of the books.And I have some charts that you'll see tomorrow with that explain all of that.You can see the rise in 0 DTE options.You can see the rise in all of these of these products.And even more so, JP Morgan just came out and said they're now going to derive all of their gamma data off of this.They're no longer using naive, which we'll talk about what that is as well as we kind of go through.But, that's what the relevance is, right?You understand that there is a hedging response that has to happen or come through as we are looking at what's happening with the price action.
Either one from a level to play off of, two, a level for price to accelerate through, or three, an area where we are going to do nothing, because there's not going to be enough liquidity to offset the hedgingand decay of all the options that the market maker has.
I think may- maybe explain a little bit if you could, Joe, about
Sure.
uh the relevance uh how that changed over the years and and why today there's this this is extremely relevant and how much size is actually being hedged in traded here.
Yeah, let me grab it.I have some some images to show you guys this.Those that weren't on last week's, let me grab them.
All right, let's do that.It's a big one.
And this one.All right, I'm going to swap over to this so you guys can see it.
All right, so
try to zoom in.You guys trade ES, right?A lot of you trade ES, some of you might trade options, right?This is from Cboe, who is where all of these options kind of sit and they're the ones that provide this data feed cuz they are the the holders just like the CME is the holder of ES E-minis.This is the jump in notional value to options with regards to SPX, SPY, and E-minis.You've noticed the jump from half of less than a trillion up to over 3 trillion in 5 years, right?This ends at Q3, I don't have an updated one.But look at how much of those options are transacted in SPX and the size of it.2 and 1/2 trillion just in SPX options alone, right?That's that's an incredibly amount of large size.That's how much people are playing in.And that's across obviously all tenors just in general how much options are transacting, right?
So you know that there's a lot of size in particular and probably more size than this than you see in the future side of the world, right?Everybody trades options these days.Now, the reason this is even more significant is this chart.So this is updated as of quarter two.This is the rise in 0DTE options, okay?Q1 to 2022 very little up till now and it keeps going higher and higher.For those that maybe, you know, don't trade options or those that have, you if you haven't noticed over the last couple years, what have they added?They've laddered added levered ETF products, which create gamma, believe it or not, which we could always discuss.They've added Monday, Wednesday, and Friday options for all of the blue chips that you see in mag seven.And they have 0 D T's every single day on QQQ, spy, IWM, all those ETFs, and then SPX.
And those options carry so much gamma because of gamma's always the largest closest expiration and the size of them is so large that the hedging influence is incredibly large when it comes to them having to adjust because ifthey didn't hedge their book and they're stuffed with what we call long gamma, then
their entire book would be they'd get ruined, right?Think about this.If everybody's buying calls and they keep going up up up and up, right?They keep going higher and they're buying calls and I I'm making all this money.Well, if the dealers on the other side, they're losing a bunch of money.Right?If they're on the opposite end of my trade and they're short the calls, what's happening to them?They're losing money.So, what do they have to do when I'm buying all these calls?That creates that short gamma.What are they doing futures if you remember from the lesson?They have to buy to offset it.What does that create?It creates a potential snowball effect where now we're just riding momentum up.So, if you remember some of these parabolic moves that we have gotten, right?In particular in the semi trades and all that, you saw the indexes rising.
A lot of that is from people just getting into a lot of calls, us pushing higher, and underlying bid inside of ES futures, and then dealers dumping on fuel onto the fire.And that is the beauty of what we call negative gamma, right?And these all these options are loaded with it.So, that's why we care.That's why it's important is because when we look at all this and the size of the options being transacted, it typically offsets a lot of what you will see inside of the markets themselves.
The conversation covers where to access the indicator and why the true market maker data matters. Joe explains that Option Strike uses actual open and close intent data, which makes its levels more reliable than inferred models.
Cool.Kenobi said I like this, we're looking forward to the info tomorrow.Yes, these gamma discussions, trust me, as we go through this, it is it'll be extremely simple.I the goal is to not confuse anybody.It's to make this actionable.Like I want you to be able to go through all right, I went through two to three days of this.I know what I can do and then keep showing up to the streams and we'll show you how it works.I'll have plenty of examples.I'll show you my trades that I've taken off of it, right?There's a plenty that we can go through and you'll see the value of all this, in particular because I am, even though I trade options, I almost exclusively trade futures when it comes to intraday trading.I'm big on NQ and ES.But I couldn't trade without this and you know, so.
Uh Liam's saying, so these levels don't get taken like ES futures contracts.Correct, but they can.So, when you guys are talking about and let me go back to Bookmap here, right?When we're when you guys are looking at trades and look at we still bounced off it again.Unbelievable.Um and you see like liquidity, right?You see on the book where all these positions are sitting and they take that liquidity, right?They they come in, they take it and it goes away.Right?We don't have that unless the person closes the position or somebody offsets it.So, it's the same concept except you don't know that there's resting orders on the book inside of the options space like this, right?There's you're not going to see a resting order on that level.Now, that being said, let's say I'm the 7725 guy, right?And let's just say that these are short calls and we've been above my position all day and I'm like, yeah, I'm losing money cuz I'm short these, market maker's long.
I want to get out.I want to close.They close that, the gamma and delta implications of that line go away.That level now cease to exist and there's nothing to stop a hedging dynamic.So, if they pull this off and the market goes lower, it's highly unlikely that there'll be a response at 7725 for the rest of the session, right?Cuz they closed it down or someone took the other side.It's just a net.All we care about is the net.I don't care what anybody else does except for what the market maker's holding cuz that's where the hedging response comes from.
Okay?So, it doesn't get taken away.It's all about opening and closing.And that's why I went through the buy close, sell to open type orders.You understand that there's so many different ways for them to play positioning, right?It's not just as simple as I want to go long, so I'm just going to go buy yes.Oh, I want to go short, so I'm just going to short yes.It gets really complex, right?There's people that do iron flies, there's a bunch of things.And the best part is is all they do if they take the size is give us better levels to play off of.You want to see someone come in with millions of dollars and buy this, because it gives you that type of dynamic.UmI struggled to understand this whole gamma thing for so long.This was excellent and I'm starting to understand it.
Thank you.Of course.Couple questions on where they can find this indicator, Bruce?Um is the indicator available on Global Plus Lifetime?That's probably a question for you, Bruce.
Uh the um option strike uh is available in Global uh Bookmap Global Premium.So, as uh Joe uh covered that earlier uh in in the uh in the beginning of the session.Uh it's also on the marketplace uh for the Bookmap store.Uh but uh uh you know, this uh Global Premium, this new product that we have here, uh there it is.Uh yeah, it includes uh the MBO bundle.You you can see it on the far right-hand side.It concludes that MBO bundle uh as well as the option strike.Um uh with the gamma levels here.
Okay, cool.Thanks for this.
our new new premium product.Yep.
Yep.And this is where you guys can see it.And we're going to do these, like I said, we have 3 days of this.I'll do this again uh Thursday.We'll do another one Friday.And then every week we'll be in here for at least an hour going through it.And you guys can always tag me in the Discord if you have questions.I'm always here to help.The The entire reason I agreed to do this, and I've told this to Bruce before, is because I've seen so much success with it that I just want to give it back, right?I want people to understand this.And there's so much misinformation out there when it comes to gamma products and people that try to confuse folks and and make it more complicated than on top of that what people don't realize, which we will cover on
the next two sessions here, is there's different calculations for it because people don't have the true market maker data, right?Option Strike has the true market maker data.It doesn't have an inference model.It doesn't have naive and we'll cover what all those mean so we can have a pretty high certainty of where positions are sitting because it gets provided by Cboe and they tell you the intent.They bought to open.They sold to open.They bought to close.They sold to close, which changes everything.If you don't know what they did, then you don't know what the true position is and your levels will be wrong.And if you've ever seen a GEX level from something that post that didn't work, probably a reason why.Um it probably was wrong in all honesty.
Joe demonstrates how to interpret positive and negative gamma bars on Bookmap and how they relate to support, resistance, and acceleration. He emphasizes that gamma matters through its effect on dealer hedging, not as a standalone directional signal.
Okay, so let's talk about this Mr.Smiles.Uh no, there's two questions here.Um and when these lines go for example, the purple lines that positions have been closed.Not quite.Okay, so this is this is gamma.Let me give just quick like 30 seconds on this.Okay?If and this will be covered so I highly suggest you guys join the next two sessions.But if I if I go and I buy a call, okay?You have to remember on long positions are long gamma, short positions are short gamma.Okay?That's a really important distinction.Where it gets messed up is we're talking about market makers.So if I buy the call, right?Like let's say the 7730s, these are a bunch of long calls that were bought.I'm going to have the long gamma attached, which makes the market maker short.So what this says
sorry Joe.If you can maybe show book map there.
Oh, I thought I was on book map.My apologies.Yeah, so right here.It's like 7730s.Right?This is a negative gamma bar.So this is telling you and if you go into the settings, you can figure out what that position is.So if I go to add-ons, I go to Option Strike and I set this to simple bars instead, I can tell you what's sitting on that position, right?On the left side.Anything to the left is going to be negative gamma, anything to the right will be positive gamma.So I know that on this, market makers are short puts and short calls.Okay?Do I care what it if it's a put and a call?Most of the time not, but it will help you see spreads on what the intent is and whether someone can close it, which we'll talk about, but we care about the gamma implications.
So, if that means that someone here is long a bunch of 7730 puts and somebody is long some 7730 calls.Okay?Either side, it doesn't matter.It still creates that short gamma, right?So, when we talk about gamma, just briefly on this, they mean two different things.When we talk about positive gamma, the idea is to just visualize this in your head.Spot price has to go up a hill.The larger the gamma, the higher the hill, the steeper the hill.When we talk about negative gamma, it's the opposite.Think of it as spot pricing going into a valley, right?You're going lower.What is easier to do?Go up a hill or go down a valley?If you're a person who's, let's say, running.It is incredibly easier to go down into a hill than it is to go up a mountain top.That's all gamma is.
If you've ever seen a halfpipe or you've ever played Tony Hawk in your life, a halfpipe is the perfect example of what gamma kind of is in negative, where the tops of that halfpipe are deep, deep, deep positivegamma peaks and the bottom of that halfpipe is where your your your largest piece of negative gamma is.So, when you were saying or mentioning, whoever was in the chat that mentioned this, about a slicing through these negative gamma bars, why do you think that is?Because they're trading with price in negative gamma versus trading against price like they do in positive gamma, right?That's why you have the valleys.These negative gamma bars that you see here all create or all these short positions create all that negative gamma, so dealers trade with whatever price is going to do, which is why you see all this erratic price action.
Now, one little caveat.We did have FOMC, right?So, that adds volatility in and of itself.But, because there's so much volatility and so much price going on and there's so much negative gamma, you know that the swings are going to be large and you can momentum try to momentum trade this in some wayif you're good at it, right?We just keep running through them.These are what we call acceleration points.We don't necessarily look at these bars for potential support and resistance.You can when and what we call gamma transitions and stuff, which we will cover.But when we're getting all this volatility, you see all this negative gamma, the thought process should go in your head is this is going to continue to be even more erratic because not only is ES moving all overthe place, I got market makers having to hedge these quick movements in negative gamma strikes and bars, which adds fuel to the fire.
They're not taking it away.Meanwhile, where have we been bouncing?The one positive gamma bar that we've had that we can't break all session long.Right?Why?When we get down here and there's a whole thing with regimes that we'll cover, too, but like just in a nutshell, 7725, this is the positive gamma that this is not a negative gamma bar.This is where in in a theory in a vacuum, they would have to hedge by trading against price and then it goes back up in the negative gamma.So, you might get this push higher now through back these negative gamma strikes if market makers and price still wants to go through.The key distinction with all of this and why it works so well with Bookmap is you guys are looking at order flow on ES futures, right?Price action will always reign supreme.
The reason that we care about this so much inside of the dealer dynamics is because we know they're going to most likely hedge inside of ES and adjust it.So, price action always reigns supreme.If price wants to go nowhere, then there is no hedging response in a vacuum.Okay?If they want to keep it sideways.And again, that we that gets into some deeper stuff, but just in a vacuum, the basics of it.If price action doesn't move, then there's nothing for them to really adjust when it comes to gamma at least and the delta of it.It just sits sideways.They'll already be hedged and they just hold it.Okay?So, price action is what dictates all of this.Price has to want to go through this.The hedging response as price goes towards these areas determines whether or not they're going to add fuel or remove fuel.
That's it.Adding fuel, removing fuel.Adding fuel, removing fuel.And that's it.And the beauty is is if we do you below this bar at 7725 and we do hold below it and the gamma doesn't change and it stays the same or gets larger, now it's no longer support like itwas, it's your resistance.It works the same way from the underside.The same way that people trade like, you know, um if you guys are initial balance range people, right?And you're looking for a breakout of the initial balance and then it might come back to that level and bounce, right?It's the same type of concept just with gamma.
This section answers questions about zero DTE data, gamma regimes, and how levels can weaken or flip as price moves away. Joe explains how clusters of gamma can create sticky price action or fuel momentum depending on the regime.
Uh yes, there is a recording.Um Joe, is it fair to say that the gamma data is for zero DTE options only?So, you can show both, but the true value if you're an intraday trader will be zero DTEs.You'll understand that more tomorrow and it's because there's so much gamma attached to zero DTEs um and I have some really cool charts to show you, but if you wanted to see all positions, there's a toggle inside ofOption Strike where you can change from zero DTE to all expirations and it'll it'll adjust.The thing is most SPX positions, minus some really key strikes, right?Are that you put on when you put this on all expirations are going to be further out of the money.So, it's not going to materially change the bars that are sitting sideways and I don't know if anybody can guess as to why, but it's because these carry so much more gamma that they're going to overtake with the
rest of the expirations say and have cuz they have exponentially less gamma attached to them.Do they matter?Yes, they're still hedging them, but for the purposes of those that are probably going to trade intraday, don't really have to focus too much on that unless you're looking for larger time frame type strategies.
Okay, let's see.So, 70 will be flip.UmThis is This is a tougher one.I- In a In a So, we have something called a gamma regime and then you have something called zero DTE gamma, right?Um There's uh some things that are coming down the pipeline with Option Strike that I'll show the regimes which will help you understand a little bit better.Just because you see these bars flip like this, doesn't mean that the gamma just instantly flipped from like a totality perspective.It's just more so talking about what's going on with that strike.This gets into the weeds a bit and we will talk about it, but it's This position is is what we call pushing out onto the regime, right?You have all this negative gamma above.This one's just kind of pushing out and and being a nuisance more than it is like a full regime shift, right?
Cuz right now we're technically in negative gamma with all of this other gamma sitting on the bars, which is why you still see more of this erratic price action.
Yes, Corey.Exactly.Amplifying and dampening.That's it.It It's not that complicated, right?But, you have to understand why we care because it's not about the gamma per se.Like, yeah, it is.It's what gamma does to delta.And all we care about is how delta is going to affect the book.And then there's other stuff that we will add on to this that will give you even a clearer picture.And then there's setups, right?There are specific setups that don't happen all of the time where if you want to know if we're going to have a potential trend day somewhere and you want to target, I can give you with a lot morecertainty than most where we'll top out at or where price is going to want to pull to.But, it's a very specific setup that you have to have inside of this for you to see it and we'll be able to go through it.
And then you'll start to notice it and be like, "Wow, I just caught 30 points on ES.That's a great trade."
And yes, Kenobi, correct.Gamma is the highest closest expiration.It's why we care about 0 DTs.And at the at-the-money strike.Okay?Um and then Cafe, can you still have longs negative gamma?Yeah, of course.That's what all of it is.Negative gamma is longs.Right?If I'm long a call or a put and the market makers are on the other side, they're short it.That creates the short gamma.So, when you see all this negative gamma, these are long positions from a customer, short positions from a dealer.This is the opposite.But, it's not about that, right?You want to use this information to help you understand if there's the potential for more momentum on a trade that you're in, look for a potential entry or exit on the trade that you're in, or where there's goingto be the largest hedging response to give you edge, right?
And there's an art to all of it, right?There's a lot of things happen inside of these complex instruments, okay?Right?A lot of things happen.But if you you study it and you look at it and you watch enough, you'll start to notice a lot of patterns, right?Wow, we just keep extending through this.Oh, wow, that was a a big level.I should pay attention to that.Well, you'll pick up on these patterns, and almost all of these patterns are uh a function of what you see with hedging dynamics.And then you overlay that with what you would typically look at on ES futures with liquidity and icebergs and all of that, and you have a pretty good map of what's happening inside of the underlying to get evenget you a little bit more edge and uh higher probabilities on your trades.
Mayor, 100% correct.And I have the image of that, I think.I could show it real quick and then I've probably got to wrap, but let me grab that quick little image um that I put in as my headphones die here.Just fine.Um where did I put this?
Support.Chop.
I don't know if I have it.I think I got one.But when you get these large levels of like a cluster of gamma, I know it was the last 2 days.I can't go back and show um show it, but if the bars here, let's just I can just show you like a visual basic example.But let's say that all of these gamma bars, all four of these, were on the opposite side, positive gamma, right?And we didn't have a lot of volatility.It's a very slow.There's not a lot of volume.All that positive gamma is going to create so much hedging effects with the lack of liquidity and the lack of movement that we just sit in it.We call it getting sticky.So, the last handful of days, these strikes, if you were watching, had a bunch of sticky positive gamma until they came off.
And then yesterday, someone came in 10 minutes before the the close, got rid of all that sticky gamma, went long a bunch of puts into mock, got a fat payday, and you were able to see it here.You could see it growing on option strike.You could not only just the gamma, but someone building that position, right?But yes, if you see a large bars of positive gamma, typically that would be on the right side, it creates that sticky price action, and it's going to be more difficult to break through it because they're hedging allof it.Think about it.If price is going up, they have to sell.If price is going down, they have to buy.Right?And they're doing that constantly in some type of capacity, right?Well, the exact amount couldn't tell you, but that's typically how it would work.And now you're seeing this push off the low here, right?
That gamma is still there.It's just that we pushed away from spot, so that level is still a thing, but now we're just pushing higher and we're just There's no type of response here from the market maker that it's going to stop it.You'll get natural free-flowing price action now, and the market maker will just add fuel to whatever direction ES wants to push.
Um and then I'll take a couple more and then I'm going to we'll cut it here.Now, certain situation, let's say if there's enough aggression in a positive gamma environment, yes, Corey.Yes.And we call that pushing out, all right?I will call that pushing out out of the regime.It can change the extent of the positioning inside the book because zero DTs carry so much weight inside of the dealer book itself.Right?So, great great great job, Corey.And then, need JC for life, is that big positive gamma just reduced a lot?Does that suggest the next retest may be weaker?It's just further away, right?It's just further away.Remember, these are gamma levels, so the gamma calculations for all of this stuff that you see are based off of net market maker contracts and a calculation that gives you the gamma.We've now pushed 20 points away from it.
So, that gamma is going to look like it eroded.It doesn't necessarily mean that it's gone.It just doesn't have any gamma to add any type of you know, have any relevance to what's going to happen.You will know whether or not they close that position down is if we do go lower, you can watch and see if that position itself closed down if the gamma bar doesn't increase.And if it does, then that level is now weak.But, if we do go lower and you see the gamma increase on the bar, that means the position is still sitting there.We're getting closer to it.The gamma concentration will should still help.But, it's like anything.The more tests of a level, the more likely it's going to break.The same thing happens inside of this.Right?So, you don't want to run into the risk of large positive gamma.
They're never going to break this.There are situations where it's highly unlikely they're going to break it, but those are usually clusters of a lot of gamma.It would be so difficult for them to push through, but one bar, one strike, always the potential to break through it.And that's the art component of all of this.
Joe wraps up with final questions about how to tell when positions are being added or closed. He closes the session by previewing the next day’s focus on dynamic hedging and deeper gamma analysis.
Uh Steven said, "What type of insight can you derive when they closed out the bars?Let's say into the close, for example, or during the day."Yeah, so that's that's where you have to figure out where we're at with where spot price is at and how we're moving, right?That that's a little bit different because as we're pushing higher now, I know just cuz I've stared at this for so long that it's unlikely that someone's adding to these positions.What's more than likely is And maybe you got a few coming in.Maybe you got a couple hundred lots.What more of this is probably is is just we have put out pushed up closer to these bars, right?Which is increasing the gamma on them, which is why we're getting this potential push higher springboard action.I mean, look at this.There's no fight really here.
And it's volatile, right?We're moving a little bit faster right through some of this, not as fast as we did after FOMC, but that is negative gamma doing its thing.The time where you will notice that someone is closing something down or um adding to a position is if we're sitting around the strike and the gamma keeps increasing.And because again, when we get closer to ex- like the end of the day, then yeah, I can explode a lot faster.But let's say earlier in the session, right?Early on in the session, you'll notice these bars will increase even if a spot hasn't moved a whole lot.That means someone's adjusting or adding to their position on each side, and you can figure it out from there.And we'll we'll make heads or tails of this when we look at it through these boxes on the left, and you'll have a better understanding of how all of that kind of looks and works, especially as we add
more tools to this um you know, add-on.
Okay.Um I think that's a good place now for now, Bruce, for me to uh to cut it, and we can get into more of this conversation tomorrow when we start diving into the dynamic hedging of uh the marketmaker book, and we dive a little bit into gamma, as well as walking you guys through some more potential, you know, positioning.
Uh excellent.Uh thank you so much, Joe.Off to a great start here.And uh uh we've got uh two more days to go.
Wonderful.Glad I hope you guys enjoyed it.Um we'll I'll catch you guys tomorrow, and we'll uh we'll dive more into this.