Interpreting Market Report Metrics
Our Market Report features a variety of metrics that provide insights into the current market dynamics. These metrics play a pivotal role in our decision-making process as they help determine the market sentiment, entry points, trade targets ,volatility expectations. and market behaviour. By understanding the information presented, you can gain a deeper understanding of the trends and patterns that shape the market landscape. For a more comprehensive understanding, we recommend exploring the content in the Resources Hub.
Gamma Levels
Gamma levels identifies support and resistance levels that are relevant in the market. These levels are determined objectively, based on an options gamma from the dealer's perspective. It indicates where buying and selling activity is expected.
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Some levels are marked as key metrics, which will be explained in detail below. Others are designated as G1-G10, with lower numbers like G1 indicating higher gamma values.
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Prices tend to gravitate towards strikes with high gamma values, while low gamma values generally offer minimal support or resistance.
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The optimal approach is to use these levels as entry and target points, or to sell options above/below the major levels. If the market breaches a level, it increases the likelihood of moving to the next gamma level.
To assess the current buying and selling pressure at each level, refer to the gamma charts in the Daily Market Report.
Key Metrics Table
4-Hour Trend
A simple yet effective method for identifying market trends involves using Simple Moving Averages (SMA).
Bullish: When the 50SMA is above the 100SMA, it suggests that the 4-hour timeframe is in an uptrend.
Bearish: When the 50SMA is below the 100SMA, it suggests that the 4-hour timeframe is in a downtrend.
1-Hour Trend
Bullish: When the 50 SMA is above the 100 SMA, it suggests that the 1-hour timeframe is in an uptrend.
Bearish: When the 50 SMA is below the 100 SMA it suggests that the 1-hour timeframe is in a downtrend.
Gamma Index
The Gamma Index helps us determine who's in control, the bulls or the bears and what market characteristics we can expect.
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If the Gamma Index value is positive, it indicates that the market is call dominant and dealers have a long gamma position. In order to hedge this position dealers buy weakness and sell strength.
Higher gamma values (positive) are associated with stability, lower volatility, and improved liquidity. This is generally known as the ‘buy the dip’ regime.
If the Gamma Index value is negative, it indicates that the market is put dominant and dealers have a short gamma position and they hedge via selling weakness and buying strength.
Lower gamma values (negative) are associated with instability, higher volatility, and reduced liquidity. This is generally known as the ‘sell the rip’ regime.
Zero Gamma
Zero Gamma measures the change in the Gamma Index from positive to negative or vice versa. This change occurs when the underlying asset's price reaches this strike.
Flip
The Flip is a transitional strike where we anticipate a change in dealer hedging and, subsequently, a change in the volatility regime. The Flip takes into account not only gamma but also vanna (volatility) and charm (time), proving an early signal of change in control.
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If the price is below the Flip level, dealers hedge via selling weakness and buying strength leading to higher volatility.
If the price is above the Flip level, dealers hedge via buying weakness and selling strength leading to lower volatility.
When trading, it is generally more attractive to buy dips above the Flip and sell rips below the Flip.
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The Flip also functions as a very strong support/resistance, selling credits at or above/below this level, and trades off this level are generally regarded as high probability.
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If there's a single level worth focusing on, it ought to be this one.
Absolute Gamma Strike (ABS)
Absolute Gamma Strike (ABS) is the strike with the highest absolute gamma value, call gamma plus put gamma. This strike possesses substantial strength in influencing the price action and is often regarded as a magnet, attracting the price towards it. This strike also exhibit noteworthy pinning potential, particularly during the week of monthly options expiration and in positive gamma. During this time, you can take advantage of this effect by playing a reversion to, a butterfly at, or an Iron Condor around the ABS. Due to the mean reversion effect, this level is prone to false breaks, therefore be vigilant when managing positions around this strike.
Call Wall (CW)
The Call Wall is considered our upper bound and is the most significant resistance level, it represents the highest concentration of call gamma. This strike often functions as a magnet when the price is in close proximity, but it frequently triggers sellers to enter the market when tested, encouraging call holders to close their positions to lock in profits while simultaneously encouraging the overwrite of calls to enhance yield.
Long trades into the Call Wall and short trades originating from it, along with short calls positioned above the Call Wall are commonly regarded as high-probability setups, taking advantage of the elevated supply. If the price tests the Call Wall early in the session, it is more likely to reject the level. However, if prices test the Call Wall late in the session, there is a high probability of it pinning.
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An upward shift in the Call Wall from one day to the next is considered a bullish indication. This shift usually occurs as a result of participants purchasing calls further out in time and price, indicating future optimism.
A shift lower in the Call Wall from one day to the next is considered a bearish indication. This shift usually occurs because participants are buying calls closer to-the-money, indicating less optimism about the future.
Put Wall (PW)
The Put Wall is considered our lower bound and is the most significant support, it represents the highest concentration of put gamma. This strike often acts as a magnet when price is in close proximity, but it frequently triggers buyers to enter the market when tested, encouraging put holders to close their positions to lock in profits while simultaneously encouraging the sale of puts due to the attractiveness of elevated implied volatility. Short trades into the Put Wall and long trades originating from the Put Wall, along with short puts below the Put Wall are commonly regarded as high probability setups, taking advantage of the elevated demand.
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A shift lower in the Put Wall from one day to the next is considered a bearish indication. This shift typically occurs because participants are purchasing puts further out in time and price, indicating greater uncertainty about the future.
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A shift higher in the Put Wall from one day to the next is considered a bullish indication. This shift typically occurs because participants are purchasing puts closer to-the-money or as a result of put monetization.
1-Day Implied Move
The 1-Day Implied Move is the expected 1-standard deviation (68.3%) range for a single trading day, calculated using the options pricing model, Black-Scholes. This metric helps in assessing market volatility potential.
Definition: 1-standard deviation is a statistical measure that signifies the typical amount of variation or dispersion of data points from the mean (average) in a normal distribution, encompassing approximately 68% of the data within this range.
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Implied High represents the highest price level expected by the options market for an asset that day.
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Implied Low represents the lowest price level expected by the options market for an asset that day.
When the 1-Day Implied Move is low, consider market-neutral or short-volatility strategies such as credit spreads or iron condors, or position closer to the market price in a butterfly spread, as little volatility is expected.
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When the 1-Day Implied Move is high, consider directional strategies like butterfly spreads or single options.
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In either case, it is often advisable to secure profits at these levels. Additionally, considering counter-trend trades and writing credit spreads outside this range can be an attractive option.
5-Day Implied Move
The 5-Day Implied Move is an estimate of the expected 1 standard deviation range for the week (5 days). The 5-day move will be provided at the beginning of each trading week calculated on Friday’s closing price from the previous week.
Definition: 1-standard deviation is a statistical measure that signifies the typical amount of variation or dispersion of data points from the mean (average) in a normal distribution, encompassing approximately 68% of the data within this range.
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Implied High represents the highest price level expected by the options market for an asset that week.
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Implied Low represents the lowest price level expected by the options market for an asset that week.
Volatility Risk Premium
This metric quantifies the Volatility Risk Premium and presents it in an easily understandable signal. This metric is utilized to evaluate whether market participants expect higher or lower uncertainty in the future price of the asset. It is calculated as the ratio of the percentage change in the 30-day implied volatility to realized volatility.
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Premium: This indicates that implied volatility significantly exceeds realized volatility, suggesting that options are overpriced. In this scenario, for 0dte Trading, long volatility strategies (single options, debit spreads, and directional butterflies) tend to outperform, while short volatility strategies (credits/iron condors) tend to carry more risk. For Swing Trading, it might be more advantageous to short volatility and/or structure swing trades via spreads.
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This scenario amplifies the strength of Vanna flows (Vanna representing the sensitivity of an option's delta to changes in implied volatility), acting as 'fuel' for a potential market squeeze if VIX declines or as a catalyst for a rapid decline if VIX continues to rise.
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Discount: This indicates that implied volatility is lower than realized volatility, implying that options are underpriced. In this scenario, for 0dte Trading, short volatility strategies (credits/iron condors) tend to outperform. For Swing Trading, there's no 'extra premium' available to collect as a volatility seller, generally making it more favorable to structure trades that benefit from increased volatility (single options, debit spreads, and directional butterflies).
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This scenario results in one-sided risk: if the VIX increases, it adds 'fuel' for a sharp market downturn and often initiates a negative feedback loop. If the VIX declines from this state, it has little to no impact on the underlying.
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Neutral: This indicates that implied volatility aligns more or less with realized volatility. In this scenario, there's no significant advantage in terms of short volatility or long volatility strategies.
Average True Range (5 Day)
Average True Range (ATR) is a technical metric used to measure the volatility of an asset by calculating the average of its price range over a specified period. It helps participants gauge potential price fluctuations, set stop-loss levels, and estimate the time it may take to reach a profit target.
For example, if the ATR is 2.5, and you enter a trade at 440 with a 10-point target set at 450, it would theoretically take 4.2 days (10/2.5) to reach the target if the price moved in a straight line. However, such a linear movement is rare in reality.
Put Call Ratio
The Put Call Ratio (OI) is a metric that compares the open interest of put options to call options and is utilized to assess market sentiment.
An increase in the Put Call Ratio indicates a bearish sentiment.
A decrease in the Put Call Ratio indicates a bullish sentiment.