What is GEX?Gex is short for Gamma Exposure.
I started tracking gamma exposure over a year ago. In fact I posted an idea with a really good explanation idea of gamma exposure but the idea was banned and I never got around to reposting.
So many private messages asking me to explain GEX, I decided to repost the banned post without the restricted content in it. If you want the restricted content, send me a message and I will send you the link
==== Original Idea posted March 6th 2022 ========
I finished updating the simple GEX tool. This tool is for educational purposes only and gives a very basic/naive overview of gamma exposure for any Ticker.
So What is GEX?
GEX stands for Gamma EXposure. Options are derivatives of financial assets that give investors more.. options. Gamma is the rate of change in an options delta per 1-point move in the underlying asset's price. When someone buys an option, there is typically a market maker (dealer) that needs to sell that option to you. Because the dealer does not want to take directional risk on the other side of the option, they hedge the option by buying or selling the underlying asset. As the price changes, the dealer must continuously make changes to that hedge to remain delta neutral.
Gamma Exposure, in this tool's case, Naive Gamma Exposure is an estimated measurement of gamma exposure that a dealer has taken on based on the full options chain's open interest. It is an estimate because nobody really knows if an option's open interest was bought or sold to a dealer.
Negative\Positive Gamma is hedged differently by dealers. If a dealer is positive gamma they will sell the rally (price up) and buy the dips (price down). Positive gamma creates a supportive and less volatile, more liquid market. If a dealer is negative gamma they will buy the rally and sell the dips. Negative gamma creates more selling pressure and more volatility, an illiquid market.
Zero Gamma or Gamma Flip is the assumed point at which dealers would flip from negative gamma exposure to positive. When the dealer is positive gamma, the Zero Gamma strike will usually act as support. When the dealer is negative gamma, the Zero Gamma strike acts as resistance.
GEX can measure individual asset gamma exposure but is more effective at measuring overall market indexes such as SPX and NDX. GEX shouldn’t be used as a directional measurement, but more of a volatility indicator.
Notional GEX is the dealers notional (total dollars) exposure in 1% move in the underlying assets price. If SPX is -20B for example, dealers will have to buy 20 billion in underlying shares for every 1% move up, or sell 20 billion for every 1% move down.
Option Quotes are delayed by 15 minutes from the open and close of the Regular Trading Hours.
Disclaimer: The GEX tool is meant to be used for educational purposes only. It is NOT meant to be used for/as financial advice. Use at your own risk.
The reason I included the JHEQX HEF Pin is because of how the different expirations effect the markets at different times.
The general idea I like to emphasize in my naive understanding of these market mechanics is TIME.
Notice in the following ideas from the past 3 months all have the 4165 HEF Pin in the forecast.
This is only possible by calculating the Gamma Exposure of the options sold to JPM and making some assumptions (next time).
Exposure
🟨 STEM Update - CAUTIONUpdate on the current environment - Orange
The market has never gotten into an easy dollar environment according to the STEM model! Do not judge the market hostility based on what indexes are doing - this is simply WRONG, if you follow the Breakout methodology taught by Mark Minervini, William O'Neil, CANSLIM investors, Gil Morales and the likes. Currently, the market is 🟨 Orange this means selective or highly rotational, signalling a need for caution.
Performance Indicator 💼
Instead look at you own performance of last 5 trades and level of stress are good indicators of the current trading environment. In an "easy dollar" market, stocks move up easily and profits come without much stress. However, over the past year, protecting profits has become increasingly important.
Here are some additional notes I have written earlier that would help you understand the methodology better:
22MAR23: For traders, it is crucial to manage risk diligently in this environment, as it can become a trap of 'death by a thousand cuts.
26JAN23: The times when the general market is directionless (like now) and the individual names are breaking out - is the first sign that we will likely tranition to an easy dollar environment - this is why we want to gauge how is the watchlist doing.
28DEC22: Yesterday, we had some coal names that tried to move and I was close to alerting them but as I was expecting they reversed and closed near lows. While in a good market this is not a problem, we are not seeing any evidence that we have moved away from the 'hard penny' environment.
If you want to learn more about the methodology - make sure you read the description here:
The ‘free lunch’ in currency hedging?Since 2012, WisdomTree has been a leader in helping investors understand the impact that currency risk can have on their portfolios. When investors allocate funds internationally, there are two sources of return: the local asset return and the return from changes in foreign exchange (FX) rates. This can be problematic during periods in which foreign currencies are depreciating against the investor’s home currency, leading to underperformance.
Historically, the default allocation of a majority of investors has been to keep the equity and currency exposure combined. However, this doesn’t have to be the case and it is possible to uncouple those risks.
Currencies, a significant source of risk and tracking difference
A globally diversified equity portfolio, like the MSCI World point of view, is a bundle of equity and currency risk. 68% of the MSCI World is invested in US equities and, therefore, denominated in US dollars. 6% is invested in Japanese equities and, therefore, denominated in Japanese yen and so on. The exposure to currency can add to or detract from the performance of the equities themselves. This means that the performance of the MSCI World (unhedged) is quite different for an investor with the US dollar as the base currency compared to an investor with the euro as the base currency.
Every year, the difference in performance between the MSCI World hedged or unhedged is significant for both euro and pound-based investors. For euro-based investors, the difference in performance driven by the currency exposure oscillated between -9.41% and +10.1%. For a British pound investor, the difference is between -5.9% and +20.4%.This embedded currency exposure also tends to increase the risk in the portfolio.
Because the currency risk sits on top of the equity risk when investing in global equities, taking currency risk or not taking currency risk has to be a conscious investment decision.
Currency hedging as a tactical endeavour
Foreign exchange rates change over time. Many factors contribute to those deviations:
interest rate expectations
inflation differentials
public policy
growth forecast
balance of payments
Over the short to medium term, currencies can move quite dramatically against each other leading to potential losses or gains for investors invested in unhedged foreign equities. For investors with strong conviction on the direction of foreign currencies relative to their domestic currency, it is therefore possible to tactically currency hedge, or not, their portfolio to try to benefit from those moves.
Currency hedging for the long run
Whilst in the short and medium term foreign exchange rates fluctuate, over the very long term, currencies tend to fluctuate around a long-term equilibrium. This phenomenon is often called ‘long term mean reversion’. This means that for long term investors in global equities, the performance impact of currencies should offset itself over long periods of time. In other words, the performance of currency hedged and unhedged investments should be similar.
However, from a risk point of view, this is not the case. As discussed previously, the long-term volatility of the unhedged investment tends to be higher than that of the currency hedged investment. A reduction of risk with zero long term expected returns sounds like a ‘free lunch’ which is why investors could look at currency hedged investments in foreign equities as their default long term investment policy.
For example, a portfolio manager with a base currency of euro and a holding of 1 million US dollars of US equities can hedge the US dollar currency risk by selling a 1 million US dollar forward contract against euro for settlement in a month’s time at today’s rate.
Operationally, this process can be quite cumbersome, in particular for a portfolio with multiple currencies and/or with hard to access currencies. The MSCI World comprises 13 currencies which means that investors would need to trade 12 FX forwards every time they want to hedge the currency exposure and then they would need to roll those 12 forwards on a regular basis.
This is why WisdomTree has been launching currency hedged share classes for its strategies, providing turnkey solutions for their investors and their currency hedging need.
21D DDOI Gamma ExposureThis chart is intended for other idea articles but I thought it was interesting enough for its own idea.
I'm not allowed to post my website, but you can find it in my profile it contains the data I used for charting this.
1) Naive Gex - Is the total option chain of a stock across all expirations. In other words the gamma exposure assumes customer is always long call short put meaning the dealer is short call and long put.
Not very helpful, but it gives you the idea of the total value of options out there. It is based on CBOE delayed data.
2) 21DMA of dealer directional open interest (DDOI) gamma exposure across all option chains of the S&P 500.
This data is mapped from my website into Trading View.
There is no way I found to get options pricing data for all of option chains, so tracing is the only way I can get this data into trading view.
What you can take from this data is simple.
It is a measure of liquidity in the entire S&P options data.
I labeled what type of liquidity regime we are in.
To those who are predicting a crash during positive liquidity environments.
Don't get caught to short. If you manage a portfolio properly then I doubt you will need to worry about a market crash.
I see 2 scenarios of a market crash happening at the bottom in stocks and bonds.
1) It's short lived (~15-20%) and corrected via interest rate decreases and changes to SLR / ON Reverse Repo. Long enough to see who has been swimming naked, but not break Central banks.
2) a crash so big it collapses central banks and US has not choice but to change to CBDC (the "great reset" scenario)
If you manage a portfolio properly, you wouldn't listen to any advice I have for doing so anyway.
and you are prepared for the scenario 1.
if scenario 2 happens it will break society and USD and everybody finds out they only own fugazzi (nothing).
Realestate, hard assets like gold, silver, food, water. oil will sky rocket.
Throughout all the selling last week the entire S&P did not go negative gamma.
This is positive market conditions.
Next week is considered a very large window of weakness in options event volatility and expiration.
I expect volatility next week and we won't know the true outcome until after OPEX.
Have you ever heard the phrase don't fight the fed.
Well in this case, don't fight the fed liquidity.
I think we're at that critical juncture the next 3 months and I will be the first waving red flags.
A slight flinch in PPI not meeting expectations was just repositioning for CPI miss and FOMC 75bps hike.
To be clear on my position.
1) I think PPI is a bad measure to inflation. so many factors. I only track for event vol and how dealers position around events.
2) CPI will likely be same as PPI. Lower but beat expectations.
3) FOMC - no rate hike. Hold for more data. Price stability...
I believe Elon Musk.
He Believes Cathy Woods
My instinct tells me that ARKK is at its tipping point now and more losses on stocks like TSLA will cause liquidity issues.
The amount of selling after Archegos would pale in comparison the financial storm of a larger hedge fund going under.
And I could be completely wrong.
It is easy to call a trend change while in the trend.
It is incredible difficult to build economic models that identify when a trend will change or when a market will crash.
But I'm trying.
So before you come clown bashing my work, at least provide some of your own information or data to backup your claims.
I have used these models of liquidity measurement to predict precisely when trends will change.
over and over
and over
and over again.
TLDR;
Dealer Directional Gamma Exposure is trending positive.
Lower CPI + Fed Rate Pause will increase liquidity.
Increased Liquidity will lower volatility through Christmas for a Christmas rally.
If no pause and higher CPI then I will buy OTM puts and go out for pizza
This trend needs to break because lower lows for this expiry or next (quad witching) will likely cause a liquidity crisis. A Taper Tantrum. The Big One.
Final Thoughts.
I am an Optimist, a Protagonist, an Innovator, Engineer, Artist, but far from ever joking around except to turn a frown upside down.
Thanks to all who support my ideas.
If the white rabbit is what you seek. The trendsetter xyz is the key.
All Eyes On USDT.D 👀Hello TradingView Family / Fellow Traders. This is Richard, as known as theSignalyst.
USDT.D has been bearish for the past 2 weeks. However, it is currently approaching support zone (7.9% - 8.1%)
For the bears to remain in control, we need a daily candle close below the 7.9%
In this case, further bearish movement would be expecting till the next support 7% and lower orange trendline. Thus further bullish movements would be expected for the crypto market.
Meanwhile, until the bears take over, the 7.9% is acting as support and hold the price upward.
If any bullish reversal setup is activated and/or if we break above the upper red trendline, then expect further bullish movement.
Always follow your trading plan regarding entry, risk management, and trade management.
Good luck!
All Strategies Are Good; If Managed Properly!
~Rich
BTC Remains Hoarded As Price DropsAccording to on-chain data, a majority of Bitcoins
BTC have not been moved in at least a year.
Crypto investors are holding on to their BTC despite Bitcoin’s performance. Long-term investors are adding to their positions or staying put on their BTC exposure.
At the time of reporting, over 60% of all Bitcoins have not moved in the last year.
According to Glassnode's HODL Waves indicator, as of Feb. 18, 60.61% of the BTC supply has not been transacted for a year or more.
75% Revenue from China - Wynn Resorts75% of WYNN revenue has exposure to China.
With the recent political news we are getting on "partial trade-deal", WYNN is up over 7% with above average volume.
Could be a good opportunity. Great risk reward ratio. (Check chart).
SUB potential break out.the market is trying to break the sma support.
MACD shows a possible break out too.
RSI is above 50, this is good.
Substratum is gaining popularity for few months.
there will be a CNN exposure in the course of april.
So a lot of things to be optimistic with SUB.
Oil Price stress on Banks with energy exposureOil price recovery has been mostly driven by USD related factors and so the fundamentals are still not where they need to be and the chronic oversupply continues. The banks with the largest energy debt exposure have felt the squeeze as a result and remain relatively risky.
This chart shows the performance of the banks with the largest declared Energy debt exposure in the US vs the XLF ETF and wider S&P 500 Index, the backdrop is the Oil price.
