Why Is Options data important?
Machine Trading is Primary
Option Expiration Creates Order Flow
Machine Trading is Primary
The majority of financial market trading is performed by machines. These computer algorithms are designed to maximize profit along many different timeframes.
Machines Hedge Delta
Option Expiration Creates Order Flow
Machine Trading is Primary
As market makers and large traders create positions, they will often hedge with a delta-neutral strategy. These portfolios can be dynamically adjusted in micro-seconds.
Option Expiration Creates Order Flow
Option Expiration Creates Order Flow
Option Expiration Creates Order Flow
Upon option expiration , the computer algorithms need to unwind, close or roll forward their hedges. This and other options order flow has a measurable impact on the underlying markets.
Mean Reversion
Bloomberg And Others Agree
Option Expiration Creates Order Flow
Market Delta Neutral is often a point of mean reversion for market price ahead of option expiration. Hundreds of millions of dollars are at stake in many key markets. This can be a "follow the money" indicator.
Gamma Represents Risk
Bloomberg And Others Agree
Bloomberg And Others Agree
Gamma represents risk for machine-trading delta hedgers. When market price moves sharply, then delta hedgers can be forced to buy or sell the underlying to contain risk. We have seen this dynamic play out in the natural gas market (Oct 2018) and in the S&P index (Dec 2018).
Bloomberg And Others Agree
Bloomberg And Others Agree
Bloomberg And Others Agree
In November 2018, Bloomberg published an article which described how "negative gamma" was a catalyst in the large decline in crude oil prices in Q4. While Bloomberg highlights the importance of this information, it cannot be found on the $25,000+ per year Bloomberg terminal.