**TLDR: GME has been sitting below the delta neutral line for almost two weeks now, and the delta neutral is holding steady at $183, indicating the options mix does NOT support the current drop in price. Pressure is currently building, meaning changes to the underlying price will have unusually high changes in purchasing patterns due to hedging against those sold options. The point with the highest change in purchasing due to hedging has dropped to $205, and COULD setup a nice surge situation.**

My work is built on the idea that the market is largely unpredictable, but one particular kind of behavior is certain - hedgies gonna hedge. It's written into their algorithms. Specifically, they like to delta hedge and gamma hedge. This work tries to profit on this one particular type of buying/selling behavior, and works well for giving guardrails for stocks with high options volume relative to the underlying equity volume.

I have a slightly new look for the graph below, so I could layer on the total market delta sensitivity test at the bottom to help explain what's happening. This graph contains the following:

- Underlying GME Close (Blue)
- Options Indicators
- Total maximum gamma (red) - point with the highest total market gamma across all open contracts. This indicates the point where a 1% increase in the underlying price would result in the highest change in the total market delta, indicating the point where a change in price would result in the highest buying / selling of the underlying stock due to hedgers hedging.
- As you can see, this point generally acts like a market ceiling, but fun things happen with the price surges past.

- Delta neutral (grey) - point where the total market delta is zero across all open contracts. This indicates the equilibrium of the call / put options based on the current mix of options contracts.
- As you can see, this point generally acts like a market floor. However, the price does go below it occasionally, and the underlying behaves differently when that happens.

- Total Market Delta Sensitivity Test
- Change in the total market delta with a 5% increase in the underlying price (green)
- Change in the total market delta with a 5% decrease in the underlying price (orange)

GME 1/4/2021 - 10/7/2021

Here are the key points I want you to take away from this:

- Right now, the underlying has been below the delta neutral for almost two weeks, but the delta neutral point has not decreased with the underlying, like it did back in June/July.
**This indicates that the current options mix is NOT supporting the decrease in the underlying price.**
- So this means that call / put buyers have not changed their purchasing patterns in the last two weeks, or have not sold off their existing contracts.
- As a result, the total market delta sensitivity test is starting to climb, so the impact of delta hedging on the underlying volume is increasing. For example, if the the options mix hasn't changed, and all those call buyers are still holding onto their contracts at $190 / $200, then as the underlying increases, hedge funds will have to start buying the underlying stock to hedge at an unusually high rate.
- Right now, a 5% increase in the underlying price would result in a 75% increase in purchasing due to hedging!
- The sensitivity test at the bottom of the graph shows this unusually high impact of purchasing volume occurs BEFORE surges, and when the price drops below the delta neutral. This is what I mean when I say that pressure builds up when the price drops below the delta neutral.
- The gamma maximum indicates the point where a 1% increase in the underlying price would result in the highest change in the total market delta, indicating the point where a change in price would result in the highest buying / selling of the underlying stock due to hedgers hedging.
- Right now the delta neutral is sitting pretty at $183. The gamma maximum has dropped to $205. SO! If we get a increase in the underlying price, then that should lead to an unusually high increase in buying pressure, which COULD translate into a price increase. If we surge past the gamma maximum (like we did back at the end of August), then this COULD translate into a gamma squeeze (like January).
- If that happens, then we could be looking at a sweet squeezy squeezy, lemon peezy.

Here are the graphs you're used to seeing if this is more to your taste:

GME 1/4/2021 - 10/7/2021

Log-based 10 view, so you can see the 2020 values and the gamma neutral spikes. Aren't they pretty??

GME 2/4/2020 - 10/7/2021

Frequently Asked Questions or Comments:

- Technical indicators don't work on GME because it's a conspiracy, man.
- That's a perfectly find opinion to have, and I respect it. My work tries to add some rhyme / reason to market movements, and my work still indicates to me that there is some method to the GME madness.

- Where can I get these indicators / analysis, or how do you make this?
- I make these indicators for all optionable stocks using options data feeds, Matlab and Excel. I use it for my own trading purposes. As far as I know, they aren't available elsewhere. I have a methodology / assumptions section at the bottom if you want to know more.
- I'm always happy to send anyone graphs for any particular stock they're interested in. Just shoot me a message, and bug me if I don't respond in a day or two.

- GME didn't do what you said it would. Is your model wrong?
- Always possible my model is wrong, and I'm always working to improve it. However, I will continue to emphasize that I'm only working in probabilities, and nothing is certain in the stock market. I think the scenario laid out in this post is the highest probability scenario.

- Gamma is always positive, so you can't have a gamma neutral.
- It's true gamma factors are always positive, but when you make a total market gamma, or total portfolio gamma, you add call gamma and subtract put gamma. This is what I'm doing in my work.

- Don't be so cranky.

**TLDR - 2nd note... for some reason you dumb dumbs can never find it if it's in one place. One more copy to go down below... GME has been sitting below the delta neutral line for almost two weeks now, and the delta neutral is holding steady at $183, indicating the options mix does NOT support the current drop in price. Pressure is currently building, meaning changes to the underlying price will have unusually high changes in purchasing patterns due to hedging against those sold options. The point with the highest change in purchasing due to hedging has dropped to $205, and COULD setup a nice surge situation.**

*Methodology and Assumptions*

**Delta Neutral**

The Delta Neutral price that creates a total market delta of 0 across all GME options (all expiration dates) for a given date. It can also be though of as the intersection of a supply/demand curve for hedged stocks. See the "Methodology and Assumptions" section for full detail on how I develop this indicator.

Notes below for general options on how the delta neutral interacts with the underlying price:

There is a large influx of call option purchases, because:

- The call prices get less expensive as the underlying price approaches the delta neutral
- Stock prices usually rebound/revert back to the mean after large crashes, so the price often rebounds anyways.

With the large influx of call volume, market makers have to start buying stocks to delta hedge, which turns the price back around and creates an upward trajectory.

- Important note that hedgies often hedge with derivatives instead of buying stocks, so there isn't a 1-to-1 relationship between the delta and shares bought/sold by hedge funds.

Historically, you can see that GME often bounces off the delta neutral prices during drops. The exception is the February drop. When the underlying goes below the delta neutral price, a lot of pressure builds up that results in a significant increase when that pressure is released.

- Note this is the primary way that I trade my model. I made a scanner that looks for equities that fall below the delta neutral.

**Gamma Neutral**

The Gamma Neutral price that creates a total market gamma of 0 across all GME options (all expiration dates) for a given date. See the "Methodology and Assumptions" section for full detail on how I develop this indicator.

General notes below for observations on how this indicator behaves:

- It acts like support/resistance between the delta neutral and the underlying, and typically bounces around between the two prices for most symbols (like we have seen with GME since April).
- It also goes crazy in periods of high volatility, as you can see by the very higher spikes.
- A gamma spike indicates the presence of POTENTAILLY slippery option market conditions, which COULD lead to a gamma squeeze. There were certainly spikes present back in January, but we had a few one-day false starts this last month.
- They are often triggered by high price movement in a day, which can lead to continue high growth if underlying volume supports it.
- Gamma spikes can also be triggered by unusual options purchases during the day. These are the one ones to find, because you can often catch the high increase waves before they actually start.
- If I'm trading this indicator, I often either wait for a gamma spike to continue for 2 days in a row and supported by increased volume. Otherwise, I invest straight away if I find a gamma spike just based on options movement (i.e. no significant underlying increase yet).

I write my own algorithms to produce the results above. The following lists some key methodology and assumptions I use:

- I rely on daily options and stock summaries produced by www.historicaloptionsdata.com
For the Implied Volatility (IV), I use the following method:

- Calculate the raw IV of the mid-point between bid/ask price at close.
- Calculate a โblendโ IV, which represents the IV where the call/put parity holds, i.e. where call delta โ put delta = 1, using the same IV.
- Smooth the mid-point call/put and blend IV using a gaussian smoothing algorithm with a 20-strike window.
- Apply the smoothed call/put relativities to the smoothed blended IV curve
- Fill any missing values with a linear interpolation of the neighboring strikes.

Using the final call/put IV estimates described above, I calculate my own Greeks. I like this source if you're interested in the formulas: https://www.macroption.com/option-greeks-excel

For the total market delta and total market gamma, I rely on the OI x delta and OI x gamma for each strike price.

- Note that the delta of a call is usually equal to (1 - put delta), so not adjustment is needed to the delta signs when calculating the total market delta.
- However, the call/put gammas are both positive based on the B-S calculation. If you're calculating the total gamma for a portfolio, or the total market, you have to add the call gamma and subtract the put gamma.

To estimate the delta neutral and the gamma neutral, I have an algorithm that relies on the optimization toolbox in Matlab to identify an underlying price that achieve a total market delta and a total market gamma.

Note that the IV would change with higher/lower prices for the delta/gamma neutral and the sensitivity tests, but the impact is not significant enough to make a meaningful difference and takes significant processing time to apply the IV curves. However, it is an important simplifying assumption to be aware of.

Open Interest (OI) is always lagged one day for options summaries. The OCC releases final open interest on a given day, and it represents the OI for the close of the prior day. Therefore, the OI I get in my summaries on 6/28 does not represent the OI as of close on 6/28. It represents the OI as of close on 6/25. If you see a source like Yahoo give live OI throughout the day, they are only estimates, and their algorithm methodology for estimating the OI based on various price/volume movement is a closely guarded secret. Using the prior day OI is currently a limitation of the data available to me.

**TLDR - 3rd note...hopefully you have found this TLDR by now... If not... then... ugh... GME has been sitting below the delta neutral line for almost two weeks now, and the delta neutral is holding steady at $183, indicating the options mix does NOT support the current drop in price. Pressure is currently building, meaning changes to the underlying price will have unusually high changes in purchasing patterns due to hedging against those sold options. The point with the highest change in purchasing due to hedging has dropped to $205, and COULD setup a nice surge situation.**