Tom's criticism of gamma exposure models misses the mark because they rely on outdated end-of-day snapshots when 40-50% of options volume now trades as 0 DTE. DeepCharts pays $28,000 for detailed CBOE trade data that identifies market-maker activity minute-by-minute, letting them map where hedging will spike or suppress volatility in real time.
Quant trading influencer Delta Trends Trading said something about the gamma exposure that is completely wrong. Just listen, then I'll debunk it.
There's no way to actually know whether these market makers are long or short the contracts, and anybody who tells you otherwise is just lying to you. You have to make an assumption, and all these platforms do make assumptions. Most of them make the same assumption, just that market makers are always short. These platforms rely on open interest snapshots to build their model of gamma exposure, but open interest snapshots are only published at the end of the day, and on the S&P, 50 50% of options trading volume is 0 DTE. So you never even get to see the open interest snapshot from the end of the day because by that time the contracts have already expired.
So Thomas criticizes most GEX platforms because they show a naively calculated version of the GEX, which is only partly true because using gamma exposure to assess the volatility of the following days based on end of day open interest is a very old concept, a concept firstly discussed by squeezemetrix.com on their first white paper of the gamma exposure, which goes with these assumptions that market makers are mostly selling options and GEX is calculated with open interest, which up to 2017 proved anyway that a negative day of gamma exposure was potentially predictive for the volatility of the following day. But then, of course, daily options became a big thing. They are now 40%, 50% of the volume. So open interest doesn't matter because it's calculated at the end of each day. So some other platforms like GEXBOT or MentorQ started doing something different. They started taking open-source option flow, basically a time and sales of all bought and sold put and call options, and started assuming that if the trade happened close to the bid price or close to the ask price, it was probably a market making firm providing liquidity to a market taker. Instead, if it was mid-price, it was likely two traders just finding themselves in the middle, which of course is also somewhat a naive assumption. We don't know if this is the actual calculation, but then CBOE came out and for a mere $28,000 that we at DeepCharts pay, they basically directly tell you every single trade, what it was and who was to open it. If it was a firm, if it was a customer, or if it was a market maker. So we actually do know for SPX option every single minute if it was a market maker buying and selling, if it was a customer buying and selling to open or to close, and also professional customers or institutional traders if they're buying, selling, closing. We have a lot of data on SPX. And with this type of data, not only you can assume what's the regime for today, but you can also plot the actual areas where negative delta hedging will bring market makers to exacerbate volatility and where in long gamma exposure areas they'll likely intervene by suppressing volatility, buying the dip, selling the RIP and basically have a map of today's volatility. And this is actually the first time an order flow platform natively integrates CBOE-sourced official market maker data to plot a GEX heatmap on the order flow chart. Follow DeepCharts for more. And to Tom, I love your videos. You were probably just misinformed on this one.
