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Strategies & Market Trends : ajtj's Post-Lobotomy Market Charts and Thoughts
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To: Qone0 who wrote (83249)12/21/2023 3:12:19 PM
From: Sun Tzu  Read Replies (2) of 97877
 
No the argument is not that the options control the underlying. The argument is that the two affect each other through a delicate balancing act by the market makers and it is a forced dance.

Here are the facts:

The notional size of the options far exceeds that of cash market. So it is a fact that derivatives move the market. But this is not the same as saying they *control* the market.

What happens is this: Market makers have to hedge their positions. This hedging is either delta or gamma. His case only looked at gamma. Unlike delta hedging which is a relatively smooth transition, gamma squeeze is pretty fast and furious *IF* it hits an air pocket like it did yesterday

He didn't say that the options controlled the market. He said that there was an air pocket based on the gamma surface. The index fell on its own, not because of options (if you are in the "THEY" argument, you could argue that someone sold enough to push the index over the edge). Once the index went over that line, the dealers had no choice but to sell it or they could get wiped out. Because of the leverage, that dynamic fed on itself and caused an even bigger drop which in turn cause more selling which...

You can see this in the parabolic way in which the market fell once the zero line was crossed.
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