Hey trader,
The wall we fought all week finally cracked this morning. Price broke 775 and ran.
Then it stopped at 779.50 and rolled over. That was half a point away from the number everybody was watching.
The easy read is that buyers ran out of steam. Call buying did fade as the session wore on.
The real answer is sitting in tomorrow’s expiration. There is over $1 trillion in positive gamma parked at 780.
That is roughly double what 775 carried all week. I have not seen a number that big at one strike since I started doing this work.
A ceiling that heavy decides where we close today. It also decides how we open tomorrow.
So what does price actually do when the ceiling gets that thick?
I’ll take you through what I am watching into the close. Tomorrow’s open settles the rest.
Why the Ceiling Got Heavier Every Day
Gamma and theta are intrinsically tied together. They carry opposite signs, and they grow in similar magnitude as expiration gets closer.
That matters for a level like 780. The same strike exerts more force on Thursday afternoon than it did on Monday morning.
I count 135,000 contracts at 780 against 81,000 at 775. The Console is where I watch that build day over day.
Dealers who sold those calls are short them. Essentially, every dollar higher forces them to sell stock just to stay flat, and that forced selling is what makes a wall a wall.
You rarely get to touch a number like that. Price comes close, then rolls away.
Today it came within half a point of the biggest one I have ever tracked.
Both levels get heavier tomorrow. Gamma keeps building right into the expiration.
Where the Close Wants to Go
Tomorrow’s wall explains the ceiling. Today’s expiration explains the drift.
At 772 there are about 14,000 contracts. At 775 it runs around 9,000. Then 777 carries 10,000, 779 carries another 10,000, and 780 holds roughly 8,500.
The gravity lands at 777. That is max pain today, basically the level where the largest amount of open option value expires worthless.
We are hovering between 775 and 777 as I write this. I think there is a good chance we just stay bottled in there.
775 has also switched roles. It capped us as resistance all week. Now that we are above it, that same interest acts as support.
Pinning action takes over as we get toward 2:00 PM Eastern. Clear 777 before then and a run at 779 comes into play.
What Tomorrow’s Open Decides
Everything hinges on where we open.
Negative gamma does not really engage until 770 or 771 for Friday. Call that the flip level, the point where dealer hedging starts pushing price around instead of dampening it.
Open at 775 and there is a $5 cushion under us before any of that turns on. The market goes very quiet inside that range.
Gap above 780 and it becomes a completely different session. There may not be much left to impede price.
Open below 770 and the downside opens up. That is where a volatility expansion becomes possible.
One number decides which of those three markets I am trading tomorrow. I will be watching the open more closely than anything else.
Now is your chance to join me and Block Hunter before the next big print hits.
Get access to our proprietary unusual options scanner along with a host of training that will take your trading to the next level.
Brandon Chapman, CMT
Creator of Ghost Prints
