Mornin' Tom! Great to see you here. Let me know what you think of the video and if there's something you'd like to see a follow-up video on! Also Tom is my dad's and my grandfather's name :)
As a visual learner and someone who reads your posts, this is so helpful. You’re an amazing educator on the options markets and in particular a part of the GME community. I’ll check out other non related topics too. Thanks mojo 😊
@21stcentury.renaissance Do you have any recommendation for literature about options for beginers, I am fundametal guy, but would like to understand more about options. Thank you and God bless.
Watching both our videos makes a great 1-2 punch! I think our approaches are very complimentary and offer great insight from a number of different angles.
Great video thanks! Could you tell me how the probability of my calls expiring worthless is calculated? I always thought this number is fake like price forecast from JP Morgan lul
There is an ideal probability that is calculated through the Black-Scholes pricing model. However, with interventionary manipulation tactics those ideal probabilities are just that - statistical ideals. The true probability is a different figure altogether that can't be calculated without perfect knowledge of the environment.
Hi Michael, how do an Market Maker exactly hedge? I did not get it, even though I followed everything you said very closely. Can you give an example of how this could be when I would buy this or that contract? That would be great :)
I'll give you an example and I think I'll also make a video that breaks this down more step by step - thank you for your question! A simple example based on delta hedging: - You buy a $GME Long Call ITM at $25 with a delta of .67 with 7 Days to Expiry - The Market Maker fills your trade as the counterparty and now is short that same $25 Call and, so, to delta hedge that position instantly buys 67 shares of $GME. Why did the MM do this? - Without hedging, the Market Maker now has -67 Delta on their books from writing you your Long Call. The Delta on their books is negative because they are short and 67 because the Call tracks 100 Shares of the underlying (up to 100 Delta total) with a delta per share of .67. - The Market Maker strives to remain delta neutral at all points in time, balancing all negative and positive delta on their books. Thus, they buy exactly many points of delta in the underlying as is necessarily to neutralize the delta value of their options. Where does the dynamism come in? - Let's $GME goes up in price so that your Call is now significantly more in-the-money. Thus, it's Delta increases from .67 to .80, meaning that for every $1 $GME goes up, your $25 Call will go by $0.80 (x100). - The MM now went from being delta neutral to having -13 delta on their books from your Call. Thus, to stay delta neutral, the MM must buy 13 more shares of $GME over the course of that price movement to hedge the risk of loss from further price appreciation in the underlying. Now, to understand MM hedging on a daily basis, apply this concept to every open options contract and new options trade to open on the market from every buyer every day. $GME had ~31mil total delta going into Friday's trading. Thus, in an ideal, pure delta hedge scenario, MMs would have been holding 31mil shares of the underlying to hedge their options positions (they don't use a pure delta hedging strategy; they use a more complex gamma-hedge dominant model so that they don't have to hold as many shares of the underlying).
@21stcentury.renaissance Thank you for your detailed answer. Now it is more clear to me. I cannot wait to see this video to understand it even better. Delta hedging is called delta hedging, because the MM hedge on the basis of the greek "delta". If delta goes up, the MM needs to buy shares. If delta goes down, the MM need to sell shares. This is due to stay delta neutral. But it is more complex, than this scenario. Is this correct what I described in my own simple words?
@@denis41 You've got it, my friend, yes! They must always hedge with respect to the inverse of the net delta value on their books in order to remain delta neutral.
Another question I have is: Hedging incurs costs, and as you mentioned, market makers (MM) largely influence the price of the underlying asset. Is it possible that market makers sometimes choose not to hedge at all?
Legally they are required to hedge a certain amount, but Keith showed that they do not fully hedge in May. He realized they were refusing to hedge when he exercised his calls in May, which is what led to the June squeeze. He knew they had not fully hedged and planned to exercise.
@@HiFiAwardTour This is exactly correct. They insanely refused to hedge his Call Position because they themselves planned to manipulate the price such that they wouldn't have to, as hedging the position would have required them to acquire so many shares in a short period of time that it would have driven many options strikes into the money - probably including the $20 strike - which would have seriously hurt their profitability. By not doing so, Keith was free to trap them in a worse situation by returning to X and allowing the algorithms to pump the price and force them to hedge at way higher prices.
@@HiFiAwardTour StereosoundS! Great to see you. I [secretly] read your comments recently over in the sub in support of me. I appreciate you, my friend! Let's keep the pressure on 'em :)
Morning Mojo. Your videos are so informative. THANK YOU. A quick question, what kind of safe trading range do you expect in next 2 days before earnings?
Great question. I'll talk about this in tomorrow's analysis article on X and in my video breakdown. New data for any given trading day doesn't drop until 6:30am EST, so I won't be able to say this or that with conviction until I get my eyes on it. The article will be out pre-market and I will aim to get the video breakdown recorded and published asap afterward.
Thanks Mojo great info as always
Cheers, my friend! Let me know if there's something you'd like to see a follow-up video on!
GOOD MORNING EVERYONE
Let's gooooo :)
Hi Mojo, thanks for keep going :)
Thankyou
Cheers my friend! Let me know what you think of the video and if there's something you'd like to see a follow-up video on!
Good morning Mojo!
Looking forward to this one!
Haha hey! Great name btw. Let me know what you think of the video and if there's something you'd like to see a follow-up video on!
Morning mojo
Mornin' Tom! Great to see you here. Let me know what you think of the video and if there's something you'd like to see a follow-up video on!
Also Tom is my dad's and my grandfather's name :)
As a visual learner and someone who reads your posts, this is so helpful. You’re an amazing educator on the options markets and in particular a part of the GME community. I’ll check out other non related topics too. Thanks mojo 😊
Cheers, my friend! I'm glad this helps :)
Great stuff Mojo! Thank you!
Cheers, my friend!
Great video. Keep it going.
Cheers, my friend, I'm not stopping!
@21stcentury.renaissance Do you have any recommendation for literature about options for beginers, I am fundametal guy, but would like to understand more about options. Thank you and God bless.
i bought those jan 17 125c when IV was 55 and sold for about a 150% gain over time
Nice!
Daily Mojo video 🤝 daily Richard Newton video.
Life is good as a GME enthusiast!
Watching both our videos makes a great 1-2 punch! I think our approaches are very complimentary and offer great insight from a number of different angles.
Great video thanks! Could you tell me how the probability of my calls expiring worthless is calculated? I always thought this number is fake like price forecast from JP Morgan lul
There is an ideal probability that is calculated through the Black-Scholes pricing model. However, with interventionary manipulation tactics those ideal probabilities are just that - statistical ideals. The true probability is a different figure altogether that can't be calculated without perfect knowledge of the environment.
Wondering if you have any thoughts on the 1.16m candle, 26.28 to 28.39, and the subsequent price action.
Do you mean from Thursday?
@@21stcentury.renaissance yes
From a technical standpoint, how would you know if you should hold a contract til expiration?
Hi Michael, how do an Market Maker exactly hedge? I did not get it, even though I followed everything you said very closely. Can you give an example of how this could be when I would buy this or that contract? That would be great :)
I'll give you an example and I think I'll also make a video that breaks this down more step by step - thank you for your question!
A simple example based on delta hedging:
- You buy a $GME Long Call ITM at $25 with a delta of .67 with 7 Days to Expiry
- The Market Maker fills your trade as the counterparty and now is short that same $25 Call and, so, to delta hedge that position instantly buys 67 shares of $GME.
Why did the MM do this?
- Without hedging, the Market Maker now has -67 Delta on their books from writing you your Long Call. The Delta on their books is negative because they are short and 67 because the Call tracks 100 Shares of the underlying (up to 100 Delta total) with a delta per share of .67.
- The Market Maker strives to remain delta neutral at all points in time, balancing all negative and positive delta on their books. Thus, they buy exactly many points of delta in the underlying as is necessarily to neutralize the delta value of their options.
Where does the dynamism come in?
- Let's $GME goes up in price so that your Call is now significantly more in-the-money. Thus, it's Delta increases from .67 to .80, meaning that for every $1 $GME goes up, your $25 Call will go by $0.80 (x100).
- The MM now went from being delta neutral to having -13 delta on their books from your Call. Thus, to stay delta neutral, the MM must buy 13 more shares of $GME over the course of that price movement to hedge the risk of loss from further price appreciation in the underlying.
Now, to understand MM hedging on a daily basis, apply this concept to every open options contract and new options trade to open on the market from every buyer every day. $GME had ~31mil total delta going into Friday's trading. Thus, in an ideal, pure delta hedge scenario, MMs would have been holding 31mil shares of the underlying to hedge their options positions (they don't use a pure delta hedging strategy; they use a more complex gamma-hedge dominant model so that they don't have to hold as many shares of the underlying).
@21stcentury.renaissance Thank you for your detailed answer. Now it is more clear to me. I cannot wait to see this video to understand it even better.
Delta hedging is called delta hedging, because the MM hedge on the basis of the greek "delta". If delta goes up, the MM needs to buy shares. If delta goes down, the MM need to sell shares. This is due to stay delta neutral.
But it is more complex, than this scenario.
Is this correct what I described in my own simple words?
@@denis41 You've got it, my friend, yes! They must always hedge with respect to the inverse of the net delta value on their books in order to remain delta neutral.
Another question I have is: Hedging incurs costs, and as you mentioned, market makers (MM) largely influence the price of the underlying asset. Is it possible that market makers sometimes choose not to hedge at all?
Legally they are required to hedge a certain amount, but Keith showed that they do not fully hedge in May.
He realized they were refusing to hedge when he exercised his calls in May, which is what led to the June squeeze. He knew they had not fully hedged and planned to exercise.
@@HiFiAwardTour Yeah that's what I thought.
@@HiFiAwardTour This is exactly correct. They insanely refused to hedge his Call Position because they themselves planned to manipulate the price such that they wouldn't have to, as hedging the position would have required them to acquire so many shares in a short period of time that it would have driven many options strikes into the money - probably including the $20 strike - which would have seriously hurt their profitability. By not doing so, Keith was free to trap them in a worse situation by returning to X and allowing the algorithms to pump the price and force them to hedge at way higher prices.
@@21stcentury.renaissance I am Stereo btw
@@HiFiAwardTour StereosoundS! Great to see you. I [secretly] read your comments recently over in the sub in support of me. I appreciate you, my friend! Let's keep the pressure on 'em :)
What's it all Meme?
Morning Mojo. Your videos are so informative. THANK YOU. A quick question, what kind of safe trading range do you expect in next 2 days before earnings?
Great question. I'll talk about this in tomorrow's analysis article on X and in my video breakdown. New data for any given trading day doesn't drop until 6:30am EST, so I won't be able to say this or that with conviction until I get my eyes on it.
The article will be out pre-market and I will aim to get the video breakdown recorded and published asap afterward.
@21stcentury.renaissance Thanks a lot, Mojo! Thats awesome and you are brilliant.