Dynamic Trend Gamma Squeeze Index
Market Indexes or very Active stocks with near term weekly options expirations tend to trade up or down in seemingly random moves to some price level only to reverse course on a dime. Our extensive research shows this phenomenon is mainly a result of Gamma Induced Squeeze levels on near term expiring options.
We have developed a unique method to combine multiple strikes and expirations to create a DT Gamma Squeeze Index. The DT Gamma Squeeze Index is either positive or negative.
Negative (Pink) or Positive (Blue) DT Gamma
When DT Gamma is positive, short sellers of calls will have to buy the underlying to hedge their short position. The amount of hedging depends on the Delta levels which in turn rises as Gamma rises.
In short, positive DT Gamma simply means that most of the hedging will be accomplished by buying the underlying.
Likewise, when DT Gamma is negative, most of the hedging will be accomplished by selling the underlying.
Large Clusters of DT Gamma
At certain strike levels, the accumulated DT Gamma Levels stand out as a Large Cluster. These large Cluster levels first become attractive/Magnet Levels.
Once the prices trade to these large Cluster levels, they become support levels.
DT Gamma Squeeze Index – Works in down trend
The Index tends to trade to Large Clusters of DT Gamma. In this example, the first large Cluster is at the 410 level with a negative DT Gamma Index.
This 410 level will act as an Attractive or Magnet level first and then becomes a support level.
Once the 410 level was reached, please note the Positive Gamma Levels (Blue) above are just very small and as such do not offer any upside Magnet levels.
Once the 410 level fails, the Index simply traded down to the next lower Negative (pink) DT Gamma Level.
DT Options Volume Sentiment
The DT Options Volume Sentiment is a proprietary arrangement of Call Buying Sentiment vs Put Buying Sentiment. We look inside each bar for Options volume across multiple strikes in both calls and puts. Using this information, we can calculate the Call and Put Sentiment.
Here in this example, the Call Buying Sentiment far exceeds the Put Buying for the entire day.
When the 405 large Cluster Level of Positive DT Gamma (Blue) held as a major support, the Options Sentiment is heavily on the Call Buying side. This provides positive confirmation from actual Options Trading in various strikes at that time.