Today’s Market Scene 3 - GEX - Terrifying, retail and large investors are疯狂买85k的保险...

Near 85k faces extreme volatility, 90k continues to be a big trap..解除 on the 26th

Today’s GEX shows a very frightening situation.. (Figure 1)
The middle 87-89k are neutral zones.. Options market makers have little influence on the price trend..

However, there is a very large negative gamma zone around 85k.. (This negative gamma starts from 86k)

This means that if the price drops to the 85-86k range, options market makers will hedge by selling spot or shorting futures to maintain delta neutrality, and the lower the price drops, the more they will sell. This will further accelerate the price decline.

At the same time, the largest traded option today is the 85k put expiring on the 26th.. (Figure 2)

Combining the market makers’ negative gamma, this indicates that some retail and large investors are疯狂买入26号85k的Put. Since there are only two days until expiration (December 26), this is a very aggressive short-term bearish or hedging behavior.

It might be to lock in year-end profits or to bet on a sharp decline caused by liquidity shortages during the Christmas holiday.

Let’s elaborate on negative gamma
This is because when retail and large investors are疯狂买入85k的put作为保护.. market makers, as the counterparty, can only疯狂卖出put (short put)

So, the market makers’ short positions are bullish (positive delta). If they don’t hedge, then when the price rises, they profit (from premiums), and when the price falls, they lose big money..

If the price drops into the 85k range, the risk for market makers increases (meaning their short puts will start losing money). To hedge this, they must sell assets or short futures to achieve delta neutrality, avoiding losses from price fluctuations.

This creates a vicious cycle..
1. Spot price drops.
2. Market makers hedge the risk of the 85k Short Put by selling spot or short futures.
3. Their sell orders further push down the price.
4. As the price drops further, market makers need to sell more assets or short futures to hedge.
Result: The price accelerates downward due to market makers’ negative gamma hedging behavior.

Today is Christmas Eve, with the US stock market open for half the day..
Many traders will also choose to take a holiday.. This means liquidity will be very thin from today to tomorrow..

Thin liquidity + forced hedging with large gamma sell orders = intense volatility.

A small sell order breaking into the 85k ~ 86k range could cause a big plunge..

So, the script until the 26th remains very clear..

Bullish traders should ideally hold above 86k..

Bearish traders wanting to push down can choose a low-liquidity moment (like midnight on the 24th or the 25th) to push the price below 85-86k, leveraging gamma effects
(This is probably also why so many are trading 85k puts today?)

Let’s see..

If the price moves downward, this negative gamma-driven sell-off can easily trigger a V-shaped rebound..
So if there’s a break below 85k, prepare for a spike with high volume.. (e.g., demand zone around 83-84k)

Additionally, 80k still seems to be a safe zone.. The positive gamma around 90k is quite thick as well..

Therefore, placing a grid to buy low around 80k ± 500 points during Christmas might also be a good idea~