KF-GEX+: Gamma, Vanna, Exposure, and IV

The option market

The majority of option volumes are generally underwritten by professional traders/desks, looking for a non-directional bet. They act as liquidity providers. Those actors (unlike how retail often functions) tend to dynamically hedge their inventory, meaning they have a direct impact on the underlying price action.

How do one hedge Gamma and Vanna exposure?

A great primer on Gamma Vanna hedging by @KeyPaganRush

Gamma exposure

Gamma exposure is hedged by buying/selling the underlying instrument as to flatten the dealer’s expected return curve.

Vanna exposure

The options dealers Vanna exposure represents the dealer’s options portfolio exposure in the context of the implied volatility.

@SqueezeMetrics cheat sheet

So what’s with the Kingfisher’s GEX+ chart?

By analyzing the Bitcoin’s options order flow, the Kingfisher is able to reconstruct the dealers’ overall positions and deduct their Gamma and Vanna exposure.

The Kingfisher GEX+ Chart for subscribed users
Volatility died down during the first leg, then ranged during the gradual price hike, and exploded on the 26th — https://www.deribit.com/main#/dvol
Note the IV numbers are off by about 35 — but the scales are correct

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