Hedge Pressure

Ghostwar19

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Hello,

I am thinking of beginning to make an option/put pressure upper indicator. Not exactly in terms of a "ratio" but in terms of a level of pressures in price from where the strongest concentration of calls or puts on the option chain like for example on the spy. I am basing this off the idea of hedge pressure where the market makers post their calls or puts in speculation of where to hedge their positions on the spy or indexes as such.

My question is to know if this is possible in tos, is it possible to scrape volume on each level of the option chain and determine a concentration of where price may reverse due to hedge? For example, the idea is that if one understands where the hedging pressure in the spy is then would that not mean this is the same level the /es will also hedge at. If anyone has any idea if this is possible would love to hear your opinions because I am not the best coder and I am just tinkering on the idea, thanks!
 

rad14733

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Thank you, I kind of suspected as much. Do you believe the conept of the idea has an viabilty though?

Your inquiry is beyond my present study of the market... Back 30 years ago I did extensive analysis of the correlation between stock and option prices and wrote analysis software for a hedge fund manager and myself, as well as a decent sized brokerage, to predict stock movements and detect insider trading but the markets have changed so much since the inception of the internet that what we used to be able to decipher in the live feeds via satellite dish is no longer relevant due to the number of algorithms churning 24/7 and the number of retail traders than almost didn't exist back then... I was one of the few... Market manipulation happens so fast that it is obscured in the blur of the sheer number of trades... Hence your question is like asking "How long is a piece of string?"... While it sounds simple, there are simply too many variables to nail much of anything down as being concrete... They call it progress... :cautious:
 

Ghostwar19

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Your inquiry is beyond my present study of the market... Back 30 years ago I did extensive analysis of the correlation between stock and option prices and wrote analysis software for a hedge fund manager and myself, as well as a decent sized brokerage, to predict stock movements and detect insider trading but the markets have changed so much since the inception of the internet that what we used to be able to decipher in the live feeds via satellite dish is no longer relevant due to the number of algorithms churning 24/7 and the number of retail traders than almost didn't exist back then... I was one of the few... Market manipulation happens so fast that it is obscured in the blur of the sheer number of trades... Hence your question is like asking "How long is a piece of string?"... While it sounds simple, there are simply too many variables to nail much of anything down as being concrete... They call it progress... :cautious:
Again, thank you, your input is most valuable. And yes, I see your point, I myself am considered a newer retail trader and hearing stories of how the market used to function 20 even 10 years ago compared to today has left me awestruck. My belief is that the use of lagging indication is now the thing of the past and the best information to use is the predictive nature of the market. A word of advice I was once given is that if there are large institutions and banks trading there must be in most cases a sense of probability in the market. Obviously over time this has been more difficult to nail down because like you said they continue to overcomplicate the process. It is probably the institutions themselves purposely implementing this to shake the retail traders out of their pockets not realizing the dangerous water they just entered.
 

rad14733

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@Ghostwar19 One thing to take into consideration is that the large institutions and market makers don't sense probability, they create it... They have money, leverage, and those split second decision making algorithms on their side... Take the following two examples for instance...

Yesterday the market plummeted while I was in a solid trade due to market manipulation as a reaction to the announcement of the new capital gains taxes... That trade went from winner to loser within a single candle...

Then this morning, sensing a recovery, I entered a Call position which I felt was premature but entered anyway... The trade went up as expected until the market makers caused a synthetic plummet to trigger Stop Loss orders well below the Bids... That plummet allowed them to buy up all of the Stop Losses below the Bids and then the prices shot back up... As they shot up that lured more retail traders and other algorithms to buy while they sold off their Stop Loss gains at an ever increasing profit... And while such practices shouldn't even be legal, it happens all too often in such situations...

Whenever I enter a trade I have preset Limit and Stop Loss OCO in place and I knew I should have cancelled the Stop Loss side of the OCO, but I went to check the overall gauge of the market and by the time I got back to my trade, a few seconds later, I couldn't cancel fast enough to avoid the stop hunt I felt was coming... The price dropped from well within profit zone to well below my Stop Loss, which was well below the lowest Bid... What I describe here happened to a good number of stocks and options that are highly traded... I'm sure the profits for them, and losses for those stopped out, were substantial... I knew better and got burnt by not acting on instinct... You might say I was asleep at the wheel because I knew there was potential for it to happen... With what transpired yesterday it was entirely predictable...

The point I'm getting at is there is really no way for us to write effective code to beat the big boys algorithms, or to even play of them... I wish there was... And I also wish I would listen to my gut instincts better... But I digress...
 
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Ghostwar19

New member
VIP
@Ghostwar19 One thing to take into consideration is that the large institutions and market makers don't sense probability, they create it... They have money, leverage, and those split second decision making algorithms on their side... Take the following two examples for instance...

Yesterday the market plummeted while I was in a solid trade due to market manipulation as a reaction to the announcement of the new capital gains taxes... That trade went from winner to loser within a single candle...

Then this morning, sensing a recovery, I entered a Call position which I felt was premature but entered anyway... The trade went up as expected until the market makers caused a synthetic plummet to trigger Stop Loss orders well below the Bids... That plummet allowed them to buy up all f the Stop Losses below the Bids and then the prices shot back up... As they shot up that lured more retail traders and other algorithms to buy while they sold off their Stop Loss gains at an ever increasing profit... And while such practices shouldn't even be legal, it happens all too often in such situations...

Whenever I enter a trade I have preset Limit and Stop Loss OCO in place and I knew I should have cancelled the Stop Loss side of the OCO, but I went to check the overall gauge of the market and by the time I got back to my trade, a few seconds later, I couldn't cancel fast enough to avoid the stop hunt I felt was coming... The price dropped from well within profit zone to well below my Stop Loss, which was well below the lowest Bid... What I describe here happened to a good number of stocks and options that are highly traded... I'm sure the profits for them, and losses for those stopped out, were substantial... I knew better and got burnt by not acting on instinct... You might say I was asleep at the wheel because I knew there was potential for it to happen... With what transpired yesterday it was entirely predictable...

The point I'm getting at is there is really no way for us to write effective code to beat the big boys algorithms, or to even play of them... I wish there was... And I also wish I would listen to my gut instincts better... But I digress...
This is great advice to keep in mind. An undeiable truth, and at this point we just have to stomach those random sucker punches and run from a trade that we have a bad feeling for
 

andre.muhammad

Member
VIP
@Ghostwar19 One thing to take into consideration is that the large institutions and market makers don't sense probability, they create it... They have money, leverage, and those split second decision making algorithms on their side... Take the following two examples for instance...

Yesterday the market plummeted while I was in a solid trade due to market manipulation as a reaction to the announcement of the new capital gains taxes... That trade went from winner to loser within a single candle...

Then this morning, sensing a recovery, I entered a Call position which I felt was premature but entered anyway... The trade went up as expected until the market makers caused a synthetic plummet to trigger Stop Loss orders well below the Bids... That plummet allowed them to buy up all of the Stop Losses below the Bids and then the prices shot back up... As they shot up that lured more retail traders and other algorithms to buy while they sold off their Stop Loss gains at an ever increasing profit... And while such practices shouldn't even be legal, it happens all too often in such situations...

Whenever I enter a trade I have preset Limit and Stop Loss OCO in place and I knew I should have cancelled the Stop Loss side of the OCO, but I went to check the overall gauge of the market and by the time I got back to my trade, a few seconds later, I couldn't cancel fast enough to avoid the stop hunt I felt was coming... The price dropped from well within profit zone to well below my Stop Loss, which was well below the lowest Bid... What I describe here happened to a good number of stocks and options that are highly traded... I'm sure the profits for them, and losses for those stopped out, were substantial... I knew better and got burnt by not acting on instinct... You might say I was asleep at the wheel because I knew there was potential for it to happen... With what transpired yesterday it was entirely predictable...

The point I'm getting at is there is really no way for us to write effective code to beat the big boys algorithms, or to even play of them... I wish there was... And I also wish I would listen to my gut instincts better... But I digress...
After day trading options for all of these years, I am convinced that you must not trade with stops! Options are defined risk products...If you cannot afford to lose your buy-in, you do not have the right allocation!
 

rad14733

Well-known member
VIP
After day trading options for all of these years, I am convinced that you must not trade with stops! Options are defined risk products...If you cannot afford to lose your buy-in, you do not have the right allocation!

It's called assumed risk... I know what I'm willing to risk for the potential reward... Trust me, I've lost plenty trading without stops but have saved a lot more by trading with them... It takes far longer to recover losses than it takes to incur them... Anyone who holds the opinion that they should be willing to lose 100% of their investment is not a trader but, rather, a gambler and a fool... This isn't hustling pool, shooting craps, or gambling at a casino where assumed risk is 100%... I know my risk tolerance regardless of which instrument type I am trading and accept that risk... Having traded since 1984 I think I know my risk tolerance by now...
 

Ilya

New member
VIP
Agree with everything rad14733 said. Also, please remember that your orders are seen first by the high frequency algos. TD Ameritrade just won a lawsuit over that, so it is expected that you will almost never fill at the high or low tick, and have to be willing to trade knowing that.
 

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