Hey trader,
Yesterday I told the room we might slip into a negative gamma structure today.
We did.
And the reason I could see it coming has nothing to do with a chart pattern or a moving average…
It’s that the walls move, and most traders treat them like they’re nailed down…
So today I want to show you how I knew where the new one would sit before the market opened, and what it cost the people who were still trading yesterday’s map.
What the last three days looked like
Monday and Tuesday were not the short you were looking for.
We opened firmly into positive gamma with a huge cushion underneath us. The negative gamma threshold was down around 745 to 750, which is a long way from where we were trading.
Then we broke through 750 and we were off to the races. Once that happened the dealers were forced to emphasize the rally, because people kept buying calls and the only way to hedge a short call is to buy stock.
Add zero DTE upside exposure on top of that and they have to buy into the rip. A volatility up scenario like that is what carried the whole move.
Yesterday the structure changed
We had a massive wall at 775. We opened right at it and fell below.
Once we started failing there, the dealers stopped pushing in either direction. The market was left to its own devices, and the devices were down.
We gravitated to 770, bounced, tried for a breakaway, and then traded right back to 770 into the close. That was the max pain level, meaning the strike with the most open interest closest to price.
That last move wasn’t gamma driven at all. It was market on close and the dealer sitting back.
How I knew where today’s flip would be
This is the part worth learning, because you can do it yourself.
I didn’t know exactly where the new level would land. But I looked at yesterday’s volume, and 774 and below looked like it was going to be negative gamma for today’s expiration.
Then I checked whether that volume converted to open interest at 774. It didn’t. We paused at 773, sat balanced, and the real build showed up at 772 with over 19,000 contracts.
Look at the overnight action. Price sat at 772 all night, because that was the gamma flip and the max pain level at the same time. It boxed the price in until we broke this morning.
The trade I took off it
I didn’t wait for the break of 770.
I put an order in for a 769/767 long put vertical at 40 cents, figuring a small bounce toward 771 would get me filled. We got the bounce, I got filled, and we rolled over.
I sold that one at 89 cents for about a 120% gain and added a 768/766 for 45 cents on the break.
The reason I anticipated instead of waiting is breadth. DIA had been down all day and RSP was weak, so either the market broke down and the trade worked, or it ran back to 772, hit the wall at 775, and gave me a late day entry anyway.
What tomorrow looks like
The walls are coming in and the accelerators are moving up.
775 was the ceiling. Now 770 is doing that job, and the put side is building underneath it for tomorrow’s expiration.
If we stay below 770 today and open below it tomorrow on a Friday expiration, we’re into the third day of this build, and the third day is where the pain shows up.
Lose 760 tomorrow and it’s a major, major deal.
One rule regardless of direction, and I say it every day. Don’t play direction in the last two hours. The later in the day you trade, the more likely it goes against you.
Brandon Chapman, CMT
Creator of Ghost Prints
