Career SPX market maker. See how options move markets with VS3D™ by VolSignals— the only dealer hedging flows platform built entirely by market makers.
Naples, FL
Joined September 2019
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VolSignals retweeted
Recently, via Bloomberg-
(Institutional desks do, in fact, use our approach too)
VolSignals retweeted
After early volatility, SPX spent much of Friday afternoon around 7630, only breaking lower at the very end of the day.
Here's how I built the levels for October 23, what I was watching midday, and how the rest of the session unfolded.
(thread)
Not financial advice.
VolSignals retweeted
I’ve seen this quite a bit as well. One of the easiest ways to identify someone who lacks real market experience is to listen to the narratives they construct around the market-making community.
It’s a huge red flag whenever someone speaks about market makers as though they’re some divine hand from the sky that sees all, knows all, and controls every movement in the market.
More often than not, these narratives serve as convenient scapegoats for price action that someone doesn’t fully understand. And when you actually tap the Street, examine positioning, or dig into the underlying data to validate those claims, they frequently fall apart.
The irony is that market makers are often just as constrained by inventory, risk limits, adverse selection, and imperfect information as everyone else. They are not omniscient, nor are they some coordinated entity operating with a singular objective.
Ultimately the “market makers are pinning the gamma bro” type of arguments are similar to the statements you hear from a fish blaming the dealer at the casino for “bad luck” on a few hands.
ken griffin, founder of the $77 bn hedge fund firm citadel, has little patience for blaming every losing trade on hedge fund deleveraging.
he says people love that explanation because it removes their own accountability.
his first questions are about the prices changing, the information his team lacks, and what other investors may have worked out.
only after exhausting those paths does he want to discuss who might be forced to sell.
his concern with reaching for that explanation too quickly:
“I actually stop learning.”
VolSignals retweeted
ARE WE OUT OF THE WOODS?
youtu.be/jTm8WD3zlhM
VolSignals retweeted
Monday Morning FYI Re-Post
You guys have lots of good choices for following experts on SPX (e.g. @VolSignals).
I'm going to lock in on and channel energy into tracking/trading the Nasdaq, going forward.
Reasons are in the tweet below.
Excerpts from the portfolio strategy (Friday's data).👇
Not shown - QQQ options analyses and Nasdaq futures trading approaches.
"Alright friends, you have seen the heavy groups, now you will see morning maniac music. Believe me, yeah, it's a new dawn."
— Grace Slick, Woodstock
Sun Oct 18
Semi-Major Announcement
For the past year I’ve been preoccupied with long-flat strategies for the equity indices. The idea is simple: stay long when a confluence of key data points line up, and step aside into cash ... or alternatives ...when it doesn’t.
Part I of a Two-part Tweet:
Why I’m moving from an S&P 500-centric workflow ... to a Nasdaq 100-centric one.
1/ Follow the force. The dominant driver of earnings growth and market leadership, now and for the foreseeable future, is technology, and AI above all. The Nasdaq 100 is that driver, nearly undiluted.
2/ The S&P 500 is a bag of a lot of stuff: utilities, staples, REITs, legacy industrials. Much of it isn’t likely to be going anywhere. Owning the whole bag means owning the drag along with the engine.
3/ The S&P’s leadership is already the same handful of tech names. So the question is simple: why hold the driver diluted when you can hold it directly?
4/ Cleaner signals. When one force moves the index, the flows that matter (options positioning, market maker hedging, dark-pool buying) read more clearly on QQQ than on a 500-stock blend.
5/ Less noise, less work. Fewer moving parts means less data to chase and more attention on what matters most.
This year the Nasdaq 100 tactical strategy (image excerpt below) is up about 34% vs QQQ’s +16%, with a max drawdown of −6.2% vs −11.7%.
Same engine (QQQ), less injury (DD stress).
The portfolio imaged below has been live, locally, since Feb. In simplest terms, the signaling methodology looks at volatility based upon the NYU Vol Lab's APMEM volatility forecast research + @Signal_Sigma 's Pro Options and Dark Pools data selects.
Of special note ... the sell QQQ signal (derived from the aforementioned) appeared on October 6. [For what might come next ... see xitter.cf/TailThatWagsDog/status…]
Right ... soooo....
Long-flat strategies immediately raise the question: when the long QQQ model steps aside, how might that cash be safely employed?
The answer to that question relies heavily on macroeconomics ... and that’s forthcoming in Part II.
VolSignals retweeted
TLDR: it's not always "short gamma", but perhaps there is something to it this time in explaining the outsized move in the $VIX on Friday.
Have seen some good discussion on the behavior of the VIX on Friday when it had a move that far outstripped what would have been expected given the relatively modest move lower in the SPX.
Typical VIX beta per 1% move in SPX is 5-10. at one point on Friday, the VIX was up almost 30% on down 60bps in the SPX. that's way out of line vs history.
The next question is "why?" here we can approach from two ways. first, "new news"...ie, what did the market learn that put it in risk-off? we can advance all of the usual suspects...pod unwinds, crude, Coreweave, etc.
But why such a strong move in VIX relative to SPX? I am always careful to advance the stock answer of "positioning" as a cause. In the derivs space, it can't always be "gamma did it"...there are just so many cross-currents that complicate getting a true read.
In the limit, it's as clear as day that positioning did do it on the volmagedon day of Feb 5, 2018.
Friday is nothing like that, but it could be the case that dealers hedging Oct VIX calls that they were short might have exacerbated the move. I can say with certainty that dealers are short a substantial amount of these. they are short "VIX gamma" --> they are short calls, long VIX futures and forced to aggressively buy VIX futures as the Oct VIX future rises and the delta on the calls they are short quickly rises.
I've simulated this below using the Oct 20 call. assuming a "hedger" was short the call and long Oct VIX future, I show how the hedger would have had to buy and sell VIX futures as the option delta moved. you can see the delta gap from 0.2 all the way to almost 0.7 in a hurry, requiring rapid buying of futures to stay delta-neutral. that delta then quickly falls to 0.4, requiring unwinding of those futures.
from the 17 to 25 strike, there are 1.8mln Oct calls open. we have to be careful not to double count, as these could be parts of spreads (ie, the Oct 17-22). we also don't really know how they are being risk managed. it's naive to think that the long side doesn't hedge but the short side does. we also have no insight on all the "dark matter" in VIX...that is, the substantial exposures that result via sell-side QIS desks.
It's always very difficult to disentangle the "why" of an outsized move. That said, I'm more open-minded than usual that positioning, coupled with timing (this occurred right near Oct expiry, creating an especially large amount of short VIX gamma) may have played a role.
We will see what happens Monday!
VolSignals retweeted
A reasonable ask - explain the mechanics by which historical trade data influences the future hedging path of an isolated component of an aggregated book
VolSignals retweeted
This expiration week was NOT a bullish one overall...
at least not from the levels at which we came into it.
SPX 7825 (ES 7875) WAS FIRST RANGE TOP
The index had to hold above 7825 in order to see charm flows turn bullish through the rest of the week.
All this means is that the big positions still open in the October AM and PM series... all those longs/shorts across ~200 points worth of strikes...
they would change throughout the week as they decayed, in ways that made the Market Maker's option position LONGER option delta.
..more exposed to the market.
The only way to realistically solve this for the Market Maker is to continuously sell futures- at whatever rate necessary- to keep up with this process so that their overall book delta remains roughly neutral.
This isn't an opinion or a bet for them.
It's just a part of doing business. In fact, it's a daily part of doing business... it's just "bigger" at this point in the cycle because the largest positions still cluster in the traditional 3rd Friday series.
This hedging need is not static.
It changes throughout the week, for a few reasons:
1. Spot movement - as SPX moves around, "gamma" causes the deltas of the options to change. Every level has a different prescription- and this is why we model a simulation across wide ranges, to understand where buying may suddenly turn to selling, for example- or vice versa.
2. Time left to expiration - as time passes and the remaining premiums in the options gets smaller and smaller, the buying or selling remaining also changes.
Imagine a position that's short 1000 of the -20 delta puts expiring in a few days. If we just model the hedge buyback required at *this* point in time throughout the rest of the week- it's roughly 400 ES futures.
But fast forward a day, and that same option will have something like a -12 delta. Now it only requires 240 futures to buy back. (The difference was already traded- it was "realized")
3. Trading - as positions are opened, rolled or closed, these needs change, too. At any given time, the total is just a sum of the parts. When the parts change, so does the total.
SPX 7730 (ES 7780) WAS FIRST CHARM FLIP
This was the level at which the flows first turned to buying from selling, on the way down.
doesn't automatically mean we bounce.
It is a legitimate shift in underlying flows.
In theory, this would serve as a probable "pin"
since that level is literally where Charm is ZERO.
Think about that for a second-
If we trade below the level- then the expiring options require the Market Makers hedging them to buy futures as time passes, in order to keep their overall options position flat delta.
If we trade above the level- the same positions now require the same Market Makers to be selling futures as time passes... for the same reason - flat delta.
It's the convergence point of their flows... "balance."
SPX 7700 (ES 7750) WAS FIRST RANGE FLOOR
SPX 7650 (ES 7700) WAS SECOND RANGE FLOOR
These "floors" are range boundaries, just like 7800 was the "top of the range" from this perspective.
Why?
These levels are the eventual Charm "flips"
Usually they are literal positions.
- the largest customer hedges create these levels.
WHAT DID THE OPEX POSITIONS TELL US IN OCT?
THREE KEY THINGS:
1. An estimated trading range of 7650 to 7825.
2. A downside bias if we didn't clear the 7825 level.
3. A projected "balance" around 7730.
DID THESE FLOWS MATTER?
you be the judge.
VolSignals retweeted
I just want to make sure these folks get credit for saying today was possible.
I don’t use them but I would and probably will when they implement $SPY. They are sharp, experienced and seem very honest.
Great call and heads up!!
WAS THIS JUST "OPEX" FLOW? 🤔
youtu.be/LRtlpAiLHpY
VolSignals retweeted
Just do it!
I need 56 more YouTube followers to hit 10k
...don't let me downnnn
youtube.com/@volsignals
VolSignals retweeted
WAS THIS JUST "OPEX" FLOW? 🤔
youtu.be/LRtlpAiLHpY
VolSignals retweeted
Are the monthly expirations more important than 0DTE?
let's find out.
This plot is 'CHARM' - but ONLY for Friday's positions
AM and PM are differentiated via color, and the black line is the sum of the two Market Maker positions.
here's how to read the chart below >>
VolSignals retweeted
9.7K MORE Dec 31 7250 PUTS BOUGHT TODAY.
not a block.. 200 to 350 lots, every 10 minutes, 10 AM through close.
~same size each clip as SPX traded within 10 points of 7800
the year-end put position is now ~51k contracts, from flat seven sessions ago. ~$270M of premium. MMs sold every one of them.
(thread)
xitter.cf/VolSignals/status/2109…
ALT Customer net position in Dec 31 SPX puts by strike at each close Oct 2 to Oct 13: 7300 puts +9.5k from Oct 8, 7250 puts +9.9k Oct 9, +17.7k Oct 12 and +27.6k Oct 13, 7650 puts +4.5k. Prints: 10k 7300s at ~$78 Thursday, 10k 7250s at ~$65 Friday, 4k more at ~$62 and 3.4k 7650s at ~$121 Monday, ~9.7k 7250s at $60 to $63 Tuesday in 200 to 350 lot clips. About $270M of premium.
Starting to see some real hedging in SPX
Dec 31 SPX puts: customers went from flat to long ~32.7k by Friday's close, and added again this morning. About $230M of premium, 6 to 7% below the index.
..all the action happening in the final trading day of the year
(thread)
ALT Customer net position in Dec 31 SPX puts by strike at each close Oct 2 to Oct 9 and intraday Oct 12: 7300 puts +9.5k from Oct 8, 7250 puts +9.9k Oct 9 and +17.7k Oct 12, 7650 puts +3.9k Oct 12. Prints: 10k 7300s at ~$78 Thursday, 10k 7250s at ~$65 Friday, 4k more at ~$62 and 3.4k 7650s at ~$121 Monday. About $230M of premium.
VolSignals retweeted
tomorrow's SPX position for CPI is wild
these are positions - not "GEX-by-strike"
to see your trading improve using this type of data, you need know how to read a position chart like this, alongside a spot level and straddle price
this shape is a red flag🚩
VolSignals retweeted
all of these AI generated "how it works" posts completely miss the mark
the only true way to understand how it all works
is to literally put yourself in the shoes of a market maker
VolSignals retweeted
Starting to see some real hedging in SPX
Dec 31 SPX puts: customers went from flat to long ~32.7k by Friday's close, and added again this morning. About $230M of premium, 6 to 7% below the index.
..all the action happening in the final trading day of the year
(thread)
ALT Customer net position in Dec 31 SPX puts by strike at each close Oct 2 to Oct 9 and intraday Oct 12: 7300 puts +9.5k from Oct 8, 7250 puts +9.9k Oct 9 and +17.7k Oct 12, 7650 puts +3.9k Oct 12. Prints: 10k 7300s at ~$78 Thursday, 10k 7250s at ~$65 Friday, 4k more at ~$62 and 3.4k 7650s at ~$121 Monday. About $230M of premium.