Hey trader,
Yesterday SPY kept reaching higher and kept getting slapped back.
It stalled at 750, drifted lower, and settled almost exactly on 748 into the close.
The easy read is that 750 was plain resistance and buyers ran out of gas…
…but that is not what pinned it there.
A stack of calls sold at 748, 750, 752, and 755 built a wall above the tape.
That wall walked price straight down into the heavy open interest at 748 and 747, which is exactly where I had a put spread sitting.
I closed it 40 minutes before the bell for 75 and a half cents against a 48-cent cost. That is a little over 50%, booked from a pizzeria in Idaho.
So what did that wall actually do to the price?
Let me show you.
The wall institutions built at 748
Institutions hedge the same way over and over. They buy puts for protection and sell calls to finance it.
The Console shows me where that call selling lands. Yesterday it stacked at 748, 750, 752, and 755, sitting above the market like a ceiling.
Those sold calls create a positive gamma zone, essentially a stabilizer. Dealers positioned there lean against the move and keep price from running.
750 was the major node in that stack. It carried zero gamma right at the strike, with positive gamma at 749 just under it and again at 751 just above.
So even with zero gamma on 750 itself, it was a heavy level. It acted as resistance every time price reached for it.
How the tape walked down to the pin
Price got stuck at 750 first. It hung there, then began dragging lower toward 749.
749 held it for a while. Then it broke.
748 caught it next. That level held, and then it broke too.
Once 749 gave way, the tape pulled straight toward 748 and 747. That is where the heavy open interest sat. That made it the magnet.
Late in the session a small gamma squeeze lifted price back up, which is just dealers briefly chasing it higher. It faded, and SPY drove right back to pin 748 into the close.
My put spread, start to finish
A put spread below the market profits when price falls. With that wall stacked above 748, the odds favored a drift down into the open interest. I positioned for it.
Here is how the trade broke down:
- Setup: a SPY two-strike put vertical, meaning I bought one put and sold a lower one to cut the cost, aimed at the heavy open interest at 748 and 747.
- Trigger: the rejection of 750 and the break below 749 that pointed price at the strikes underneath.
- Edge: the calls sold from 748 to 755 capped the upside and pulled price down into the levels below, the exact direction the spread needed.
- Cost: around 48 cents on average, half filled at 45 and half at 52.
- Target: a buck on the spread, roughly double the entry.
Price came down to 748 about 40 minutes before the close. I was eating pizza at a family reunion in Idaho at that point.
I decided the risk was not worth holding into the bell. I closed it for 75 and a half cents, a little over 50%.
I left the last stretch on the table. That was a fine trade to me.
Members who took it did better in spots. Brian pulled 110% on the 749/747 version. Eric got in at 39 cents, out at 67, then filled a second one for 80.
What the pin was telling me
That 748 pin was not random. It was the center of gravity the call selling created, and price settled right on it.
Today opened differently. We gapped down from 748, which spilled the tape into a negative gamma structure below.
Negative gamma is the opposite force. Instead of dampening moves, dealers amplify them, so the upswings and the downswings both get bigger.
That is the read I carry forward. Find where institutions sold their calls, and you have found both the ceiling for the day and the level price wants to gravitate toward.
Brandon Chapman, CMT
Creator of Ghost Prints
