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Tips


The following lists several of the many ways that our data helps categorize stocks at various points of their trade cycles. We've also included some common pitfalls of inexperienced options traders and a glossary of terms. Please also read our Terms of Use for the data.

1) Large negative SA-GEX / volume on the GEX Dashboard indicates heavy speculative call interest.
--> Stocks here that also have large short interest and are pushing up against major resistance levels can quickly pop higher.

2) SA-GEX state Change from positive to negative. on the GEX Dashboard. Apply filters:
* SA-GEX: Negative
* Call Skew: Positive
* IV: gr than 126 or 75-125 (based on trader risk tolerance preference)
* Sort results by SA-GEX Change column.
--> Click through each ticker on list and look for meaningful trend shifts (from solidly positive to negative) for long positions.

3) Identify stocks that have consolidated and getting ready for next large move. Use Skew Dashboard and apply filters:
* Call Skew: positive
* IV / BB Width: gr than 10.0
* IV: gr than 126
* Sort results by IV column
--> These are more speculative plays as a narrow Bollinger Band does not necessarily equate to moves higher.

4) Strong Call Skew vs average, strong negative SA-GEX and you're expecting prices to move higher.
--> Call spread.

5) Implied Volatility is abnormally low compared to a stock's historic IV and there is a large negative SA-GEX so that you are expecting a big directional move in either direction.
--> Straddle with strikes about one standard deviation out-of-the-money.

6) Implied Volatility is abnormally high compared to a stock's historic IV and there is a large positive SA-GEX (especially in major indexes) so that you are expecting prices to remain within a range.
--> Condor / butterfly / short strangle where your nearest calls and puts are about one standard deviation out-of-the-money.


***Other essential principles of trading options***

- Have a defined process on your option trades. What are the conditions to open the position? What is the structure of the trade? What are the conditions to close the position?

- Always be aware of event risks for a stock such as earnings reports. Earnings report days often have a large amount of implied volatility that is priced in, and that IV falls significantly after the event.

- Plan and identify price levels where you want to buy options. For example, don't decide to buy some calls on a day when the stock is up a bunch and chase price higher.

- IV, Delta, and Theta are important to understand when buying options, but they are critical when buying OTM options. You can still lose money on options even if you make the right call on the underlying directional move.

- Theta hurts an option's value the most in the week of expiration. Options with more than 60 DTE have smaller theta. Once there is less than 20 DTE theta really starts to increase. Deep in the money options have the least theta since those options are mostly intrinsic value there isn't much theta to decay (Theta is the decay of extrinsic value).

- Generally you don't want to hold options until expiration. Instead, sell after hitting your price objective or reaching your max loss. Sell/roll at least a few days prior to expiration if needed.

- The fewer the days to expiration the less room for error you have.



Notes on Gamma Exposure (GEX)

- "GEX($ per 1% move)" is given as "Naive GEX", meaning that it is calculated under assumptions that Market Makers are buying calls and selling puts.
- A stock's Call Skew influences the "Skew Adjusted GEX" (SA-GEX), which changes to reflect estimated MM exposure. A positive Call Skew is common in stocks which have outsized speculative call buying.
- Positive Skew Adjusted GEX: Daily movement subdued as Market Makers re-hedge by buying as stock price falls, and adding to their short as stock price rises.
- Negative Skew Adjusted GEX: Daily movement accentuated as Market Makers re-hedge by buying as stock price rises, and adding to their short as stock price falls.
        (For additional details, see notes below and this blog post.)

GEX Data Table Details:
- Our data looks at all options with less than 94 days to expiration.
- "GEX(shares)" is calculated by summing gamma from calls at each strike (gamma * Open Interest * 100) and puts (gamma * Open Interest *-100).
- "GEX($) per 1% move" the equivalent dollar value of GEX for a 1% move in the underlying stock. This is how much of a stock MMs must buy/sell per 1% move in order to remain neutral in their positions.
- "GEX/Volume" is the ratio for GEX (in shares) to the daily average trade volume (in shares).
- The "Flip Point" is the level where gamma changes from positive to negative, or vice versa.
    - While above it, stock movement gets suppressed (Market Makers re-hedge by buying as stock goes lower, and selling as price moves higher).
    - When below, stock moves are accentuated (MMs re-hedge by buying as stock goes higher, and selling as prices moves lower).
- "DPI EMA" is the Normalized EMA of its Dark Pool Indicator

Other Notes:
- "Naive GEX" calculations assume that investors are primarily selling calls and buying puts (Market Markers buy the calls and sell the puts, then hedge their positive delta by shorting shares).
- The accuracy of GEX on a given security depends on the validity of the base GEX assumptions, specifically whether investors are selling calls and buying puts.


Notes on Skew and Delta data:

- Based on the price of options, each stock has an Implied Volatility (IV). The Implied Volatility defines the one standard deviation move over a given period of time.
- "Expected Move" is defined as a One Standard Deviation Move, derived from the stock's current Implied Volatility.
- We take measurements of Put and Call Deltas for options that are one standard deviation out-of-the-money with ~ 30 days to expiration. (The "Delta" for a given contract is defined as the probability that the option will expire in the money.)

Interpretation of Data:
- A stock with a positive Call Skew has option demand skewed toward calls.
- A stock with a negative Call Skew has option demand skewed toward puts.
- The Current Call Skew should be evaluated with respect to its Average Call Skew.- Sentiment can be evaluated by comparing the Current Call Skew to the Average Call Skew.

The Skew chart displays the Implied Volatility (IV) and Delta for each Out-Of-The-Money put and call contract. Note: The "Delta" at a given contract is the probability that the option will expire in the money.

The Call Skew History chart tracks the "Call Skew", which is the delta of calls at One Standard Deviation above current stock price minus the delta of puts at One Standard Deviation below the current price with 30 days to expiration.

Bollinger Band compression:
- Stocks will generally see their Bollinger Bands (parameters: 10 days & 2 std) compress while price consolidates prior to next breakout.
- Measurement of Bollinger Band width helps people see at a glance what stocks are currently in a compression phase to identify a more ideal time to buy options.
- High IV : BB Width --> Stock is moving less than usual with recent compression in daily price movement.

Implied Volatility Changes:
- Large changes in IV that are not accompanied by large price changes in the underlying are often a prelude to underlying price movements.

Skew Data Table Details:
- Our data looks at all options with less than 94 days to expiration.
- "1 Standard Deviation" is calculated using an average of IVs around the At-The-Money strikes, and then converted to dollars of share price for the given period.