The Curve
by s7ven
The Hedge · Options flow
The prints themselves, what they are commonly read to mean, and the hard boundary of what the data can support.
Options traded on their final day of life, now a large share of index option volume.
Their extremely high gamma near the money means the hedging they generate is concentrated and short-lived. Their growth has changed the composition of daily option volume substantially since the early 2020s.
See also charm exposureAn order that executes across multiple exchanges at once to fill quickly, accepting worse prices to get done.
Reported as a signal of urgency. What it actually indicates is a preference for immediacy over price, which is not the same as a view, and the buyer may be hedging something you cannot see.
See also blockA large options transaction negotiated privately and reported to the exchange, rather than worked through the public book.
Blocks are frequently one leg of a multi-leg position or a hedge against an underlying holding. Reading a single reported leg as a directional bet is the most common error in flow commentary.
The ratio of put volume or open interest to call volume or open interest over some period.
Volume-based and open-interest-based versions behave differently, and neither distinguishes an opening trade from a closing one, or a speculative position from a hedge.
The boundary of the whole discipline: the exchange publishes contracts and prices, never intent, never ownership, never the position a trade belongs to.
A large call purchase may be a bullish view, a hedge on a short position, one leg of a spread, or a volatility trade with no directional content at all. Every dealer exposure figure is an estimate built on an assumption about which of those it was.
See also the positioning assumption