Hey trader,
Yesterday I bought a SPY spread for a net 32.5 cents. I closed it at an average of 95 cents.
That’s a healthy 190% return in one session.
Today I, went to put on the same trade…but at a fraction of the size.
What exactly changed?
One word – Gamma.
I know I discuss this concept ad-nasuem. Yet, it’s the roadmap that tells you what the market will do BEFORE it ever moves.
Today, it gave me an entirely different picture than yesterday.
Yesterday, I had about $1-$2 before we hit a gamma ceiling.
Today, there was about $7.
Now you understand why I reduced my risk today.
However, I want to take this a step further and walk you through the gamma map.
That way, you’ll understand what I’m looking at and how I read it.
Gamma Decides How Much Room Price Gets
Every session I pull up a gamma exposure map before I place anything. It shows me where dealers sit at each strike price.
When puts outnumber calls at a strike, that strike is in negative gamma. Dealers there buy rallies and sell selloffs, which pushes whatever move is already underway a little further along.
Positive gamma reverses that behavior. Dealers sell into strength and buy into weakness, so price gets capped and starts to stick.
Basically, negative gamma is a slippery slope. Positive gamma is a wall.
The distance between price and that wall is the number I care about most.
Yesterday Left Me Two Points of Room
SPY broke below 776 and glided along 775. Positive gamma started at 777.
That put the wall one to two points overhead. Underneath, the negative gamma only got heavier as the session wore on.
I bought a put vertical at 35 cents. I added a second at 30 cents, which brought my net cost basis to 32.5.
A put vertical means buying one put and selling a cheaper one below it. The debit I pay is the most I can lose.
775 broke. Price rolled all the way back to 773.
I closed half at 80 cents near 774. I closed the rest at $1.10 near 773.50, for an average fill of 95 cents.
Today the Wall Sits Seven Points Away
SPY is trading around 768. The call wall is up at 775.
Seven points of room means price can drift a long way against me before any dealer is forced to lean the other direction.
The bigger issue is 770. Roughly 13,000 contracts sit at that strike for today’s expiration, more than any other strike on the board.
Open interest that heavy behaves like a magnet. Price gets pulled toward it as the close approaches.
We’re closer to 770 than we are to 765, where about 9,000 contracts sit. The nearest pull is working against a downside trade rather than for it.
There’s a real chance the day stalls near 767.50, parked between the two magnets. That’s the outcome I don’t want.
The Trade I’m In and the Level That Changes It
Earlier today I couldn’t buy an at-the-money spread at a price worth paying. By midday the skew steepened enough that 40 cents got it done.
Here’s where I sit right now.
- Setup: two SPY zero DTE put verticals, $2 wide, one strike out of the money
- Entry: 767/765 filled at 40 cents, then 768/766 added at 40 cents, 80 cents total across two contracts
- Target: a move to 767 pays about 25%. A move to 766 puts both spreads near a dollar
- Invalidation: a push into 770, where the pin gravity takes over. I’d roll up to a 769/767 for 10 to 15 cents
- Max risk: the debit, 40 cents per spread
- Edge: the zero DTE volatility smile lets me buy the lower implied volatility strike and sell the higher one
Breakeven on the 768/766 comes in at 767.60. Even a retest of that area early enough in the session puts me in profit.
The Level I’m Watching Into Friday
765 is my line for the week. It’s a put wall carrying about 9,000 contracts today and 54,000 for Friday’s expiration.
Below that, 760 holds 24,000 contracts and 755 holds 48,000. Very little on the call side offsets them.
A break of 765 opens the door to a volatility expansion. I don’t expect the VIX to move much until that level gives way.
Skew is sitting at 142 right now. It bottomed at 126, and anything north of 130 tells me institutions are actively adding hedges.
Every day, I walk traders through the GEX map, helping them understand where large open options positions sit and HOW they’ll affect the market.
Without it, you’re flying blind.
Join my Ghost Prints today, and join us tomorrow for our next session…And Yes, NAME YOUR OWN PRICE.
Brandon Chapman, CMT
Creator of Ghost Prints
