Hey trader,
I told the room Thursday that 770 was going to be the line in the sand.
Friday we popped above it instead…
So let me walk you through what I got wrong, what I missed, and the number that was sitting there the whole time…
Because there was a wall on that chart I should have been pointing at, and it was worth four and a half billion dollars.
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What happened Thursday
We spent the day in negative gamma. The 775 wall failed, we sold off, and we settled around 768 because that was the bigger open interest level for that expiration.
The put vertical I shared closed for over 100% early in the session, and anybody who took it had a chance at 50% or better through the afternoon.
Then I broke my own rule on the second one.
I was sitting at breakeven with fifteen minutes left, holding through because it was house money and I thought 768 might break. My rules say close it for breakeven in the last half hour. I did not, it ripped in a single bar, and I took max loss on that trade.
Net for the day I made almost nothing, and the reason was discipline rather than analysis.
Why 770 did not hold
The gap up on Friday changed the structure and I underweighted it.
Once price opened above 770, that level stopped being a line in the sand and became something the market had already cleared. The negative gamma flip moved down toward 769 and there was almost nothing sitting there to force anything.
Same lesson I keep repeating and just paid for again. Walls move, and when the tape gaps through a level overnight, yesterday’s map describes a market that no longer exists.
The number I should have been shouting about
Pull up the gamma exposure on the SPY for Friday and one bar towers over everything else on the chart.
There is a call wall at 775 with a notional value of four and a half billion dollars, which is not a typo and not one or two billion either.
It looks like a middle finger sticking up out of the chart, and once you see it the whole session makes sense.
Underneath it there is 29,000 of call open interest at that strike against 3,000 on the put side. Thirty-two thousand contracts sitting on one number.
So a dealer facing that has one job as price approaches. They sell into it hard, and then they buy the dips as price pulls away.
Which tells you what kind of day you are getting before the open. Not a trend day. A day that grinds toward 775 with volatility drying up as it goes.
How you trade a wall like that
When the biggest open interest strike sits close to price, that number is max pain, meaning the strike where the most contracts expire worthless. Dealers want price there if they can get it.
The trade is a butterfly centered on that strike, and the timing matters more than most people realize.
A butterfly is cheapest early in the session when there is still uncertainty about where price ends up. As the day wears on and the pin becomes obvious, the same structure gets more expensive.
So you buy it cheap in the morning and you sell it into the certainty later.
A $2 wide fly at 775 was running around 55 cents Friday morning, which felt expensive to me for that width. Tighten it to 774 by 776 and it was 13 cents, which needs price to finish almost exactly on the number.
Sell that into the pin for 30 and you have done well on a day nobody could trade directionally.
The rule underneath all of it
Gamma is not a direction.
If somebody uses the word gamma and does not tell you anything about the options market, they do not know what they are talking about. Gamma is positive or negative, and that describes a regime rather than a move.
Negative gamma means dealers accelerate whatever price is already doing. Positive gamma means they sell rallies and buy dips, which dampens everything.
Friday was positive gamma with a four and a half billion dollar ceiling. That is a completely different day than Thursday, and the only way to know which one you are in is to look before the open.
Brandon Chapman, CMT
Creator of Ghost Prints
P.S. Thursday I flagged a Rocket Lab spread at 27 cents. I sold mine around 40 for a 50% gain because I had to leave.
By Friday it was worth a dollar. Almost 300%, and I left most of it on the table.
The setup came from institutions buying calls at 90 and a call wall at 80 that price broke through. That combination is what Block Hunter is for. Start the 90-Day Challenge
