Viking Analytics

Why Do Our signals Provide an Edge?

Machine Trading is Primary

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The majority of financial market trading is performed by machines.  These computer algorithms are designed to maximize profit in many different timeframes.

Machines Hedge Delta

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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

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As option expiration approaches, the computer algorithms must unwind, close or roll forward their delta hedges.  This creates order flow which tends to create compression between market delta and market price.  

Order Flow Can Lead to Mean Reversion

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As a result, the Option Sentiment report essentially becomes a "follow the money" indicator.  Price (green line) and Neutral Delta (red line) tend to converge prior to the option expiration date.

Gamma is a wild card

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Delta hedgers must also monitor their gamma exposure.   When market gamma spikes, the delta hedgers may be forced to buy or sell; we have seen this dynamic in the natural gas market (Oct 2018) and in the S&P index (Dec 2018).  

Bloomberg And Others Agree

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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.