Gamma Levels

Why Looking at Correlated Option Chains when Trading Futures

Understanding why you should look at correlated option chains when trading futures can significantly enhance your trading analysis. While you might trade ES or NQ futures, examining the option chains from related assets like SPX, SPY, NDX, and QQQ provides critical insights into dealer positioning across different market participants.

Each asset attracts different types of traders, which matters for your analysis. SPX options are primarily traded by institutions due to tax, size, and settlement reasons. SPY options appeal to asset managers and retail traders, plus SPY goes into 401k accounts where investors hold positions long-term. Futures attract CTAs, retail investors, and institutions. Because these three assets move in the same direction but have completely different option chains, analyzing all three together reveals valuable confluence zones and potential conflicts.

When all three assets show support or resistance at the same level, that creates a high conviction area where you can expect stronger price reactions. For example, if SPX, SPY, and ES all show put support at the same level, that’s a much stronger support zone than just one asset showing it. Conversely, if SPX and SPY are in a positive gamma environment but ES shows negative gamma, you’ve identified a flow conflict that signals different market participant positioning.

In the demonstration, converting SPX and SPY levels to ES revealed multiple important areas. The price stopped at the HVL levels from multiple assets, and resistance zones appeared where core resistance zero DTE and gamma wall levels converged from different chains. Similarly, on NQ, adding QQQ and NDX levels showed the morning price stopped exactly at the HVL of QQQ and HVL zero DTE of NDX, confirming the importance of these confluence zones.

Within the indicator, you can convert levels using either an automatic ratio or manual ratio. The platform provides videos and documentation explaining the conversion process. By mapping out these high conviction areas from correlated assets, you can build a complete trading roadmap in less than 30 seconds, identifying where put support, resistance zones, and key reaction levels align across multiple option chains.

Video Chapters

  1. 00:00 – Why convert levels when trading futures
  2. 00:22 – Understanding different option chains and market participants
  3. 02:21 – High conviction areas and flow conflicts
  4. 03:52 – Converting SPX and SPY levels to ES
  5. 06:12 – Adding QQQ and NDX levels to NQ
  6. 07:48 – Building a complete trading roadmap

Key Takeaways

  1. SPX, SPY, and ES have completely different option chains traded by different market participants, providing unique insights when analyzed together
  2. When all three correlated assets show support or resistance at the same level, it creates a high conviction area with stronger expected price reactions
  3. Flow conflicts occur when some assets show positive gamma while correlated assets show negative gamma, revealing disagreement between different trader types
  4. You can convert levels using automatic ratio or manual ratio to map dealer positioning from multiple option chains onto your futures chart
Video Transcription

[00:00:01.04] - Speaker 1
The, the other questions is you provide levels on ETFs and indices. If I trade futures, why should I convert levels and how it works? Right, so very good question. We get that a lot. But it's very important that we, that we go into why.

[00:00:22.02] - Speaker 1
Why this is key. Right? So let's, let's look at this slide. So what you see in this slide is really the net gamma exposure chart for three different assets that move in the same direction. We have spx, the index, SPY and es.

[00:00:41.29] - Speaker 1
Right. And basically why are we showing this? Because with Mentor Queue, you can access data on all three of these assets. Those three have different option chain, so they have different chains. So the option chain that you have on SPX is completely different from SPY and it's completely different from.

[00:01:02.12] - Speaker 1
Yes. Why is that important? Because it can provide you a great insight on what's going on. So the answer is, first of all, let's analyze who is the customer and who is the type of customers that, that would trade these assets. Right?

[00:01:20.17] - Speaker 1
So if we look at spx, SPX options are mostly traded by institutions. There's tax reasons, the sizes and their settlement reason for it. If we look at SPI options, they're actually a very good instrument for asset managers, retailers, because they offer a lot of liquidity and flexibility. But also think that SPY is also an asset that goes into your 401k. So, so if you want to get an exposure on the market, you're going to probably buy a SPY ETF and you're going to hold that for a very long time.

[00:01:53.29] - Speaker 1
So the customer that is actually buying or selling these options is way different from who's buying and selling spx. And then of course you have the future. So who actually is trading futures? So we have CTAs that are trading futures, we have retail investors, we have institutions, right? So looking at those three in conjunction is very, very important.

[00:02:21.16] - Speaker 1
And this is kind of like a breakdown and basically how can we compare basically those levels across all three and use like this at our advantage? Right. So for example, if all three of these assets show a put support at the same level, that's a high conviction area, Right? That means that not only we are near a very important gamma levels on spx, but we are also close to very important gamma levels on ES and spy. So that's going to be a very strong, a much stronger reaction area than just simply looking at one asset, Right?

[00:02:59.08] - Speaker 1
Or for example, if SPX and SPY are in a positive gamma environment, but ES is showing a negative gamma, we are now into a flow conflict. Right? So we are in a zone that like, hey, two assets are telling me one story. One asset that moves in the same direction is telling me another story. So how can I use this to my advantage?

[00:03:22.07] - Speaker 1
Right, and basically this is why we have all three of those, because you can then convert those into standardized levels. So you can actually trade futures using the full map of dealer positioning in your chart. And again, this is again additional data that you can use at your advantage. So let's go back into the indicator now and let's show you how we can now convert these levels. Right, so what can we do within the indicator?

[00:03:52.05] - Speaker 1
So let's go here. So first of all, here I have Nvidia. Let's go back into my end of the indicator and let's say that I want to convert SPX to yes and I want to convert SPY to Yes as well.

[00:04:15.04] - Speaker 1
Right, the way you convert the levels and we're not going to go into details today, but we do have the ability for you to use an automatic ratio or a manual ratio. Right. We have videos documentation that shows you how to do that. But for simplicity, let's just use our auto ratio and then let's go into our yes chart. Right, so now we're going to see a lot of levels here.

[00:04:39.17] - Speaker 1
Right, so now we have a lot of information there. But why is this important? Because we can now map out important areas coming from spy.

[00:05:00.14] - Speaker 1
We can map out important areas coming from SPX and we can map out here important conviction areas coming from both assets. Right, so now you have not only the YES levels, but you also have some important areas that basically can tell you where the SPX level are. So now we have again, we have our HVL 0T IS level on ES. We have our HVL level on yes, but we also have some very important key areas on spy. And to the downside, we have our put support here on yes, but we also have areas here that are very important on spy, right?

[00:05:44.03] - Speaker 1
SPY and spx. And if we want to bring the levels back, we can bring them here. We can see that again, if the price was to move to the downside to these areas we have a very important area coming from SPX and spy, which is our HVL area. If we're going to the upside, we're going to face up a wall coming from SPX and spy. So we have our core resistance zero DTS and our and our core resistance zero d is an hvl.

[00:06:12.29] - Speaker 1
Sorry, and Gamma World here on SPY as well. So again Having those there can really help you add an additional layer to the picture. We can do the same thing on enq. So if we want we can add QQQ levels to ENQ and we can add NDX levels to enq.

[00:06:40.22] - Speaker 1
Very, very simple is done with the indicator. Now we can go on our NQ chart and we can do exactly the same thing so we can see and again there's a lot of data here but don't be scared about having too much data. What you want to map out is really those important eye conviction area that you see here. So again, take a look at where the price stopped in the morning. We stopped at the HPL of QQQ and the HVL ZURI t of ndx.

[00:07:12.22] - Speaker 1
Right. Very, very important to the upside. We have a very strong area right here and then if we go further up we also have our zero t is levels right there. Right. So take out the levels now and now we can easily trade with a roadmap that is telling me the that this area is important not only because we have our put support coming from MQ but we also have an important area of conviction coming from both NDX and qqq.

[00:07:48.11] - Speaker 1
To the downside, this error is going to be very key. We, we saw it, the price bounced exactly at the QQQ level Right, right there. And if we go to the upside we need to break through this area first which is also a high conviction area coming from QQQ and ndx. And then of course we have this area all the way at the top. Right.

[00:08:09.22] - Speaker 1
So again, in less than 30 seconds I basically build an idea of where my trading activity can be for.