The Volatility Surface is a three-dimensional representation of implied volatility (IV) plotted against both strike prices and expiration dates. Unlike the traditional volatility smile, which only shows how IV varies across strikes at a single expiry, the surface gives you the full picture — a landscape of how volatility is priced across the entire options chain.
When visualized, the surface looks like a 3D grid or wave. The X-axis represents the strike price, the Y-axis shows implied volatility, and the Z-axis (depth) reflects the time to expiration. This creates a powerful, multi-layered view of market expectations and risk pricing.
3D Volatility Surface 3
While a traditional 2D volatility smile helps identify sentiment at one point in time, it lacks the ability to show how the market’s pricing of risk evolves across different expiries. That’s where the Volatility Surface stands out.
It allows traders to:
Identify term structure skews (e.g., elevated short-term IV vs. longer-term calm)
Spot event-driven volatility clusters like earnings or macro announcements
Understand how risk is priced over time and across price levels
These insights are critical when building multi-leg or time-based strategies, such as spreads, calendars, and diagonals — or when selling volatility into events.
Using the Volatility Surface in Trading
Let’s look at how this data becomes actionable:
🔹 Options Traders
You notice a steep upward curve on the front-month OTM puts for TSLA, indicating elevated short-term fear. This could be the market pricing in near-term uncertainty — a perfect setup for premium sellers or traders looking to structure short-dated credit spreads at high IV.
🔹 Futures Traders
Analyzing the surface for SPX or QQQ might reveal a flattening term structure, suggesting that implied risk is tapering off. This aligns well with strategies where you reduce size or lean into mean reversion setups — supported by lower expected volatility ahead.
🔹 Swing Traders
You spot IV spikes in 3–4 week expiries, especially on strikes around key support zones. This could hint at institutional hedging, helping you time your swing entries more accurately.
Volatility Surface 2D
This chart offers a flattened, heatmap view of the 3D Volatility Surface, allowing you to quickly scan implied volatility (IV) levels across both strike prices (Y-axis) and expiration dates (X-axis).
How to Read It:
Y-Axis (Vertical): Strike Prices — from low to high
X-Axis (Horizontal): Days to Expiration — from short-term (3 days) to long-term (171 days)
Cell Values (%): Implied Volatility at that specific strike and expiration
The Momentum Strategy is a systematic trading approach designed to select and trade sector ETFs based on momentum shifts. The strategy aims to capture short-term market trends by selecting ETFs with the strongest increasing momentum.
Q-Score Momentum Model
The Q-Score Momentum Model reflects the underlying trend strength of an asset. Our proprietary quant models analyze price action and technical indicators to determine whether an asset exhibits bullish or bearish momentum.
A higher momentum score suggests strong positive price action, while a lower score indicates weakness or potential downside pressure. Traders can use this score to align their positions with prevailing market trends. Our model assigns a score ranging from 0 to 5:
Identify the ETF with the highest difference between today’s momentum score and the momentum score 5 days ago.
Only consider ETFs with a positive difference (i.e., increasing momentum).
If multiple ETFs have the same momentum difference, select the one with the lowest standard deviation of returns over the past 3 months.
Buy at the market open.
Exit Conditions:
Sell at the market open the next day unless the same ETF remains the top pick.
If no ETFs meet the conditions, no position is taken.
Trading Costs:
A commission of $2 per trade is applied (total of $4 per round trip).
Backtesting Period:
January 1, 2014 – January 31, 2025
Initial Capital:
$100,000
Performance Summary
Now let’s look at the historical backtest of this strategy and look at the performance versus the Benchmark (S&P 500 Index).
Momentum Strategy for ETF Trading 12
Now let’s look at some Key Metrics.
Momentum Strategy for ETF Trading 13
We can also look at the return distribution across years comparing this with the SPX.
The Momentum Strategy outperforms the SPX in cumulative return and CAGR, showing strong long-term performance.
It has a higher Sharpe and Sortino ratio, indicating better risk-adjusted returns.
The strategy exhibits stability with lower drawdowns compared to SPX.
Momentum Strategy for ETF Trading 14
And finally let’s look at the distribution of returns by month historically.
Momentum Strategy for ETF Trading 15
Sensitivity to Initial Capital
The strategy was tested with varying capital levels to evaluate its robustness. Larger capital allocations help mitigate the negative effects of commission costs, leading to more stable and consistent performance over time. Performance across different capital allocations is detailed below.
The Seasonality Strategy is a systematic trading approach that selects and trades sector ETFs based on historical seasonality patterns. The strategy aims to capitalize on seasonal trends by investing in the ETF with the highest seasonality score, ensuring the score is non-negative.
Q-Score Seasonality Model
The Q-Score Seasonality Model assesses the historical performance of an asset over a specific time frame. Using 20 years of historical data, our model examines the price behavior of an asset over the next five days and assigns a score ranging from -5 to 5:
-5: Low Seasonality. Indicates a Bearish seasonality
0: No Seasonality. No significant seasonal trend
5: High Seasonality. Indicates a Bullish seasonality
By leveraging the seasonality score, traders can anticipate potential price movements based on past performance and create advanced strategies. Our Seasonality score looks at the trend for the next 5 days. You can read more about our Q-Score in our dedicated Guide.
Seasonality Strategy for ETF Trading 23
Asset Universe
The strategy focuses on the following ETFs:
XLE (Energy)
XLF (Financials)
XLU (Utilities)
XLI (Industrials)
XLK (Technology)
XLV (Healthcare)
XLY (Consumer Discretionary)
XLP (Consumer Staples)
XLB (Materials)
IYR (Real Estate)
IYE (Energy Select)
OIH (Oil Services)
SMH (Semiconductors)
IBB (Biotechnology)
Seasonality Strategy Rules
Entry Conditions:
Identify the ETF with the highest seasonality score (must be ≥0).
If multiple ETFs have the same score, select the one with the highest average return over the past week.
Buy at the market open.
Exit Conditions:
Sell at the market open the next day unless the same ETF remains the top pick (in which case, the position is held).
If no ETFs meet the criteria, no position is taken.
Trading Costs:
A commission of $2 per trade is applied (total of $4 per round trip).
Backtesting Period:
January 1, 2014 – January 31, 2025
Initial Capital:
$100,000
Performance Summary
Now let’s look at the historical backtest of this strategy and look at the performance versus the Benchmark (S&P 500 Index).
Seasonality Strategy for ETF Trading 24
Now let’s look at some Key Metrics.
Seasonality Strategy for ETF Trading 25
We can also look at the return distribution across years comparing this with the SPX.
The Seasonality Strategy significantly outperforms the SPX in terms of cumulative return and CAGR, indicating strong long-term performance.
The strategy exhibits a relatively low beta, suggesting it is not highly correlated with SPX, which can be beneficial for diversification purposes.
The high returns in years like 2019 and 2021 showcase the effectiveness of seasonal trends in certain market environments.
Seasonality Strategy for ETF Trading 26
And finally let’s look at the distribution of returns by month historically.
Seasonality Strategy for ETF Trading 27
Sensitivity to Initial Capital
The strategy was tested with varying capital levels to evaluate its robustness. Larger capital allocations help mitigate the negative effects of commission costs, leading to more stable and consistent performance over time. Performance across different capital allocations is detailed below.
In this article you will learn how to set up the Menthor Q Indicators for MotiveWave. You can now access Gamma Levels, Swing Levels and Blind Spots Levels on the platform. You can now integrate the MenthorQ data into MotiveWave directly via API.
What is MotiveWave?
MotiveWave is a trading and charting platform designed for advanced technical analysis, strategy development, and automated trading. It supports multiple asset classes, including stocks, futures, forex, options, and cryptocurrencies. Learn more about MotiveWave here.
Indicator Features
Within the Indicator you have the following features:
Integration via API
Full Customization of Levels Plots and Labels
Access Multiple Levels Type:
Gamma Levels
Gamma Levels Intraday
Gamma Scalping
Gamma Scalping Intraday
Blind Spots
Swing Levels
Levels Conversion. You can convert all Levels Type from one asset to the other using Manual Ratio
Check out the Video Tutorial.
How to integrate MenthorQ Levels on MotiveWave
Integrating the MenthorQ Levels into MotiveWave is very simple. To do so follow these Steps:
Log into your Account Dashboard and go under Integration. Locate the MotiveWave section and download the indicator zip file.
We have two indicators available: The Windows and the Mac OS Version.
MotiveWave Integration 40
Paste the indicator in the MotiveWave Extensions folder within your computer.
MotiveWave Integration 41
Unzip the File into the folder
MotiveWave Integration 42
This is how the folder should look like after the Zip file has been extracted
MotiveWave Integration 43
Add the Indicator to your chart by looking at the menu: Study – Custom
MotiveWave Integration 44
Configure the Indicator
Once downloaded the indicator go into your MotiveWave Indicator List and look for the MenthorQ Levels Indicator.
Step 1. Add your API Key
Scroll down the Indicator Settings and add your API Key. You can retrieve the API Key within the MenthorQ Account Dashboard.
MotiveWave Integration 45
Step 2. Choose Level Type
You can select what types of Levels you want in your chart and the Gamma Model. You can add Gamma Levels, Swing Levels (when available) and Blind Spots Levels.
For Gamma Levels we have 2 Models:
Gamma Levels. Those are the main MenthorQ Gamma Levels.
Gamma Scalping. This model allows you to access more gamma levels within a smallare range. Tailored for Futures Traders who are looking at tight areas for scalping.
Within the Indicator you have the ability to fully customize the color of the labels, select which labels to plot, choose the style and more.
MotiveWave Integration 48
Step 4. Levels Conversion
Within MotiveWave you can now convert Levels from one asset to the other. For example you can do the following conversions:
Convert End of Day SPX Gamma Levels to ES
Convert Intraday QQQ Gamma Levels to NQ
Convert QQQ Blind Spots Levels to NVDA
Convert GLD Swing Levels to GC
Note: Conversion only works with Manual Ratio. For more information about Levels conversion check out our Tutorial Videos on our Trading Integrations Course.
In today’s fast-paced financial markets, traders and investors seek objective, data-driven insights to enhance their decision-making. The Q-Score, derived from our proprietary Quant Models, offers a comprehensive scoring system that evaluates assets based on four key factors: Momentum, Seasonality, Volatility, and Options.
By assigning a numerical score to each factor, the Q-Score provides a structured approach to market analysis. You can find the Q-Score on the Dashboard.
The Menthor Q-Score 56
Take a look at this Tutorial Video on the MenthorQ Score.
Breaking Down the Q-Score Components
Momentum Score
The Q-Score Momentum Model reflects the underlying trend strength of an asset. Our proprietary quant models analyze price action and technical indicators to determine whether an asset exhibits bullish or bearish momentum.
A higher momentum score suggests strong positive price action, while a lower score indicates weakness or potential downside pressure. Traders can use this score to align their positions with prevailing market trends. Our model assigns a score ranging from 0 to 5:
0: Bearish Momentum
3: Neutral Momentum
5: Bullish Momentum
The Menthor Q-Score 57
Seasonality Score
The Q-Score Seasonality Model assesses the historical performance of an asset over a specific time frame. Using 20 years of historical data, our model examines the price behavior of an asset over the next five days and assigns a score ranging from -5 to 5:
-5:Low Seasonality. Indicates a Bearish seasonality
0: No Seasonality. No significant seasonal trend
5:High Seasonality. Indicates a Bullish seasonality
By leveraging the seasonality score, traders can anticipate potential price movements based on past performance and create advanced strategies. Our Seasonality score looks at the trend for the next 5 days.
The Menthor Q-Score 58
Volatility Score
The Q-Score Volatility Model measures the magnitude of price fluctuations of an asset. Our model assesses realized volatility to determine the likelihood of price swings. The volatility score ranges from 0 to 5:
5: High Volatility Environment, indicating large price fluctuations.
Traders can combine the Volatility Score with IV Rank (Implied Volatility Rank) and Implied Volatility to identify potential volatility arbitrage opportunities. When volatility is low, option premiums tend to be lower, making certain strategies like long straddles less favorable, while high volatility may present opportunities for selling premium.
The Menthor Q-Score 59
Option Score
The Q-Score Options Model ranks an asset based on activity in the options market, providing insight into trader sentiment and expected price direction. The score ranges from 0 (bearish) to 5 (bullish):
0: Strong Bearish Sentiment from the options market.
5: Strong Bullish Sentiment from the options market.
By combining the Options Score with the Momentum Score, traders can gain additional confirmation for potential moves. This forward-looking model integrates key options market indicators to forecast price direction and sentiment shifts.
The Menthor Q-Score 60
How Traders Can Use the Q-Score
The Q-Score provides a structured, quantitative perspective on market conditions. Here are some key ways traders can utilize it:
Trend Confirmation: Use the Momentum Score alongside the Options Score to validate bullish or bearish trends.
Seasonal Patterns: Leverage the Seasonality Score to identify historically strong or weak periods for an asset.
Volatility-Based Strategies: Adjust trading strategies based on the Volatility and Option Scores—favoring trend-following trades in low-volatility environments and mean-reversion trades in high-volatility conditions. These two indicators, together with IV Rank can also be great tools for options buyers or sellers
Options Market: Incorporate the Options Score to gauge sentiment and potential shifts in market positioning.
The Q-Score serves as a dynamic tool for traders, helping them adapt to evolving market conditions. By integrating multiple quantitative factors, it offers a holistic view of asset performance. Traders can refine their entries and exits by aligning strategies with momentum, seasonality, volatility, and options activity, enhancing their decision-making precision.
How to build a Quant Strategy using the Menthor Q-Score
The Menthor Q-Score can also be used to create Quant Trading Strategies. Learn how to use our Q-Score to create Quant Trading Strategies using Momentum, Volatility, Seasonality and Options Models.
Check out our Strategies. Access the Documentation with full backtest:
The Volatility Smile is a term used to describe the relationship between implied volatility (IV) and the strike prices of options within the same expiration date. It visually appears as a U-shaped curve when plotted on a graph with strike price on the X-axis and implied volatility on the Y-axis.
This pattern shows that options with strike prices far from the underlying asset (either higher or lower) tend to have higher implied volatility than options near the spot price. Traders can use this pattern to identify market sentiment, forecast potential price movement, and structure their strategies to capitalize on these insights.
Volatility Smile 63
What Is the Volatility Smile?
In its simplest form, a volatility smile reflects the market’s pricing of risk. Normally, the implied volatility (IV) for at-the-money (ATM) options is lower than that for out-of-the-money (OTM) or in-the-money (ITM) options. This is because investors and traders believe there is more uncertainty about how far an asset’s price could move in either direction. The further the strike price is from the current market price, the more potential for volatility, hence the higher implied volatility.
The U-shaped curve appears because far OTM options (both calls and puts) see a rise in implied volatility due to the tail risk priced in by the market. Traders expect more drastic price movements to be reflected in these options. On the other hand, ITM options show similar behavior with higher implied volatility as well, as they are considered more sensitive to market movements.
How to Use the Volatility Smile in Trading: A Case Study with AAPL
Let’s take the example of Apple (AAPL), a popular stock often used in options strategies. Suppose you are analyzing the volatility smile for AAPL and notice that the implied volatility for strikes at $350, $375, and $400 (OTM calls) is significantly higher than that for the ATM strike at $300, where the implied volatility is lower.
This indicates that the market expects larger movements in AAPL’s stock price but isn’t confident whether these will be to the upside or downside. The higher implied volatility in the OTM calls and puts suggests a concern for large swings in price, perhaps due to an upcoming earnings announcement, major product launch, or broader market events.
Using the Volatility Smile for Option Strategy
In this scenario, a trader can leverage the volatility smile to set up a long straddle or a strangle strategy. Both of these involve buying a call and a put option simultaneously but at different strike prices. The trader can buy the ATM call and put options, which are cheaper than the OTM options due to their lower implied volatility, while also taking advantage of the higher IV in the OTM strikes.
Alternatively, the trader might decide to sell ATM options (where the volatility is lower) while buying the OTM options (where volatility is higher). This strategy is more of a short volatility play, where the expectation is that implied volatility will drop as the expiration date approaches, and the price of AAPL might not move dramatically in either direction. This benefits the trader because the time value of the ATM options would decay faster compared to the OTM options.
Another way to use the volatility smile is to sell volatility when implied volatility is high (in the OTM options), expecting it to revert to the mean. AAPL’s implied volatility might be elevated due to upcoming earnings, for example, and if the earnings announcement passes without major surprises, implied volatility would likely decrease, benefitting the trader who sold options with inflated premiums.
Check out this Video on how to read the Volatility Smile.
Risk and Reward with the Volatility Smile
Trading based on the volatility smile requires a strong understanding of the underlying asset’s price action, as well as the timing of when volatility is expected to change. It’s also important to manage risk carefully, as positioning in options with high implied volatility can be a double-edged sword. While buying options with higher implied volatility can result in substantial profits if the stock makes a significant move, they are also priced higher, meaning a larger move is required to break even or make a profit.
On the flip side, selling volatility works best when the market’s fear (and implied volatility) is at its peak but is expected to subside. The trader’s goal in this case is to sell overpriced options and collect the premium while waiting for implied volatility to drop.
Conclusion
The volatility smile is an essential concept for any options trader. By examining how implied volatility varies with different strike prices, traders can gain insights into the market’s expectations for future price movements. In the case of AAPL, understanding how volatility behaves across strikes can help a trader select the most effective options strategy, such as long straddles or selling volatility, to profit from expected market behavior. Additionally, staying mindful of changes in the volatility smile can help identify when market sentiment is shifting and when adjustments to the trading strategy may be necessary.
In this Guide we will go over our New Intraday Gamma Models. But let’s look at why they are key for any traders.
Market Sentiment Analysis: Gamma models highlight shifts in the options market that can significantly affect underlying asset prices. Metrics like Gamma Flip and Net GEX help traders understand the market’s behavior as it transitions from positive to negative gamma environments, influencing volatility and price movement.
Actionable Insights: The models track key levels such as Primary Levels, 0DTE Levels, and Secondary Gamma Levels, enabling traders to identify areas of likely market reactions or resistance/support zones.
Intraday changes in Top Strikes with Positive GEX Change can pinpoint significant market activity.
Risk Management: Understanding gamma exposure helps traders anticipate potential sharp moves or stability in the market, aiding in position sizing and hedging strategies.
Positive/Negative Gamma. Knowing whether the market is in a Call Dominated Environment or other conditions allows for better alignment with market trends.
Volume and Volatility: By combining gamma analysis with metrics like Volume and Gamma Condition, traders gain a comprehensive view of liquidity and potential pressure points in the market.
Intraday Snapshots
We will provide various intraday snapshots:
8 am EST
9:50 am EST
10:15 am EST
10:45 am EST
11:15 am EST
11:45 am EST
12:15 pm EST
12:45 pm EST
1:15 pm EST
1:45 pm EST
2:15 pm EST
2:45 pm EST
3:15 pm EST
3:45 pm EST
Intraday Gamma Models will be available for Stocks, ETFs and Indices.
Intraday Gamma Models
Now let’s look at the different models and how you can use them.
Net Gamma Exposure
For Gamma Exposure we will provide two different intraday models:
Net GEX All Expirations. This looks at GEX across the full options chain updated intraday
Net GEX 0DTE. Here we calculate the Net Gamma Exposure Chart only on 0DTE or WDTE expirations. In the case of Indices or ETFs like QQQ and SPY? we will provide the 0DTE Net Gamma Exposure Intraday for options expiring the same day. For Stocks that do not have 0DTE we will provide the Net GEX Chart for the next weekly expiration.
You can access the models by using the /netgex_intraday and /netgex_0dte command.
Intraday Gamma Models 70
Volume
For Volume Change you will be able to access the change in Volume for the 0DTE Expirations. In the case of Indices and ETFs you will see the volume for options expiring the same day. For Stocks you will see the volume change for the next weekly expiration.
Intraday Gamma Models 71
GEX Difference
Another key model is the GEX Difference. Here we will provide two models:
GEX Difference vs Last. This command will show you the change in GEX of the current snapshot versus the previous intraday snapshot. In this example we can see the change in GEX from the 10.45 am EST snapshot versus the 9.35 am EST snapshot. Command: /gex_diff_vs_last
Intraday Gamma Models 72
GEX Difference vs EOD. This command will show you the change in GEX of the current snapshot versus the previous end of day snapshot. In this example we can see the change in GEX from the 7.45 am EST pre-market snapshot versus the 9.35 am EST snapshot. Command: /gex_diff_vs_eod
Intraday Gamma Models 73
Intraday Gamma Levels
We will also provide users with Intraday Gamma Levels for TradingView and the other integrations. Command: /levels_tv_intraday and /tv_list_intraday
Intraday Gamma Models 74
Liquidity Summary
We will then provide a clear Summary of the Liquidity Change by looking at GEX, Gamma Levels, Volumes, GEX Change, Gamma Regime and more.
In this article you will learn how to set up the Menthor Q Indicators for Thinkorswim (TOS). You can now access Gamma Levels and Blind Spots Levels on the platform.
What is Thinkorswim (TOS)?
Thinkorswim is a top-rated trading platform trusted by traders worldwide. Known for its comprehensive tools and user-friendly interface, Thinkorswim is consistently recognized as an industry leader in the trading community. Featuring advanced analytics, customizable charting, and seamless order execution, its integration capabilities allow access to cutting-edge tools like Menthor Q’s actionable insights for enhanced market analysis.
How to integrate MenthorQ Levels on Thinkorswim
Here is how to set up the Thinkorswim indicators on your platform:
Step 1. Download the Indicators
Once you join the Premium Membership you will have access to your Account Dashboard and you can find the Thinkorswim section under the Integration tab.
Step 2. Click on Studies and Edit Studies
Click on the Studies – Edit Studies and once the window opens click on Import.
Thinkorswim Integration 80
Then select the Custom Study you downloaded from the MenthorQ website.
Step 3. Add the Study to the Chart
Once you import it the study will be available on the left side under studies just search for the name and double click it will be loaded into the chart.
Thinkorswim Integration 81
Step 4. Indicato on the Chart
Now once you click apply your indicator will be in the chart.
Thinkorswim Integration 82
Step 5. Customize the Settings
To customize the Settings click on Edit Studies and go into the indicator settings. You can customize the Value of the levels, the color of the lines and format and more.
Due to TOS Limitations you would need to manually change the values of the levels you want to plot on your chart from the settings section.
In this Guide we want to share the Swing Model Backtesting Results during one of the busiest earnings release week. We are looking at the week of 10/28/2024 to 11/01/2024. Companies like Google, Apple, Amazon, Meta and more reported this week.
We go over the full backtest during our Live here below:
Backtesting Assumptions
The backtest has the following assumptions:
Data was taken from MenthorQ Swing Trading Model as of Sunday 10/25/2024. The levels from Sunday are calculated after market close on the previous Friday.
We then took the Bias given by the model weather Bullish or Bearish and we downloaded the various levels: Upper Band, Lower Band and Risk Trigger.
We then trade at the Open of Monday 10/28/2024.
The entry price is at the open and the exit price follows various assumptions as per the below strategies.
Here you can find the File with the Data and Results.
We then created various entry and exist strategies. We trade based on two approached: Going Long Short the Stock or by selling Credit Spreads using Options.
Long / Short Stock
Strategy 1:
Long / Short Underlying Stock. We trade the Stock at the open of 10/28/2024.
Entry: Going Long if the Bias was Bullish and Going Short if the Bias was Bearish.
Exit: We close the trade at the open of the day after the earnings report.
Strategy 2:
Long / Short Underlying Stock. We trade the Stock at the open of 10/28/2024.
Entry: Going Long if the Bias was Bullish and Going Short if the Bias was Bearish.
Exit: We close the trade at the close of the day after the earnings report.
Strategy 3:
Long / Short Underlying Stock. We trade the Stock at the open of 10/28/2024.
Entry: Going Long if the Bias was Bullish and Going Short if the Bias was Bearish.
Exit: We close the trade at the open price of Friday 11/01.
Strategy 4:
Long / Short Underlying Stock. We trade the Stock at the open of 10/28/2024.
Entry: Going Long if the Bias was Bullish and Going Short if the Bias was Bearish.
Exit: We close the trade at the close price of Friday 11/08.
Here you can find the Summary Results that are also available on the File. Here are the findings:
3 out of 4 Strategies have a Win Rate of over 50%
All the 4 strategies return a positive return of 2% or more for the Week
Strategy 4 is the best performing with 67% Win Rate and a Portfolio Performance for the Week of 7.22%
Swing Model Backtesting during Earnings 86
Selling Credit Spreads using Options
The second type of strategy leverages the Swing Trading Levels and Bias to define our Credit Spreads. These are the assumptions:
If Bias is Bearish we sell a Call Credit Spread using the Upper Band as the level for our Sold Call
If Bias is Bullish we sell a Put Credit Spread using the Lower Band as the Level for our Sold Put
We have created two strategies using the 5D and 20D Swing Model
Here are the details of the strategies:
Strategy 5: Swing Model 5D
We sell a Put Credit Spread or Call Credit Spread at the Open of Monday 11/28/2024
We use the 5 Days Swing Levels and we choose the Expiration of 11/01/2024
We use the Lower Band for the Strike of our Sold Put if Bias is Bullish and the Upper Band for the Strike or our Sold Call if the Bias is Bearish
Strategy 6: Swing Model 20D
We sell a Put Credit Spread or Call Credit Spread at the Open of Monday 11/28/2024
We use the 20 Days Swing Levels and we choose the Expiration of 11/22/2024
We use the Lower Band for the Strike of our Sold Put if Bias is Bullish and the Upper Band for the Strike or our Sold Call if the Bias is Bearish
Here you can find the Summary Results that are also available on the File. Here are the findings:
Both strategies return a win rate of over 75% with Strategy 5 having a win rate of 87.5%.
Strategy 5 returns a Portfolio Return of 7.26% for the week.
In this guide we will show how to use the MenthorQ Data for your morning preparation. It takes only a few minutes.
1. Liquidity Snapshot
You can access the Liquidity Snapshot by typing the /liq_snapshot command on the Query Bot. Within this screen we particularly monitor the following data points:
Negative Gammaindicates potential for sharp price swings.
Negative GEX: Dealers hedge into trend, regardless of direction = Removes liquidity
Positive GEX: Dealers hedge against trend, regardless of direction = Adds liquidity
Bullish Momentum signals upward price movement.
IV30 vs HV30: Implied volatility is lower than historical volatility, which suggests the market may be calming down after a period of higher actual volatility. This combination can influence both directional and volatility-based trading strategies.
The Put/Call Open Interest Ratio compares the number of open put options to call options. A ratio of 2.56 suggests that there are more put options being traded compared to calls, which might indicate a bearish outlook from option traders, despite the bullish momentum.
Morning Preparation with MenthorQ 95
2. Option Matrix
Next we will look at the Option Matrix. The Matrix simplifies the read of the Option Chain for any assets within our coverage. You can access the Matrix using the command /matrix in the Query Bot.
Morning Preparation with MenthorQ 96
When GEX is positive, expect a more stable market with limited price swings. It’s often a signal that mean reversion trades (buying dips, selling rallies) could be effective.
When GEX is negative, expect more volatile markets with larger price swings. In this case, you might look for momentum trades, riding trends rather than fading them.
When DEX is positive, expect potential upward pressure on the market. If you’re seeing strong support levels and rising prices, it could be a sign to enter long positions, especially if you’re riding the momentum.
When DEX is negative, expect downward pressure. In this case, you might want to be cautious with long positions or look for opportunities to short if the market shows signs of weakening.
High Positive GEX + Positive DEX: Indicates a potentially bullish environment with stable upward pressure. You can look for long setups, especially if the market shows resilience on pullbacks.
Negative GEX + Negative DEX: Indicates a potentially bearish and volatile market. Here, you might look for short setups or be cautious about long trades.
Mixed GEX and DEX (e.g., positive GEX with negative DEX): This could indicate a choppy market, where the price might be stuck in a range or show unexpected volatility. In this scenario, shorter-term trades with tighter stops might be necessary.
Expiry Exp. Move. This column leverages our Option Implied Move Model to forecast how many points up or below the price can move by the expiration date.
3. Net Gamma Exposure (Net GEX)
Next we will look at the Net Gamma Exposure Chartor Net GEX. You can access the chart by using the /netgex command.
Morning Preparation with MenthorQ 97
This is how we can use this chart:
Predicting Volatility: The chart helps traders identify where market makers’ hedging activity may stabilize or destabilize the market. For example, heavy negative GEX at lower strike prices indicates higher volatility if the price starts to drop.
Support and Resistance: The GEX distribution gives clues to important support and resistance levels (e.g., $540 put support and $570 call resistance). Traders can use this information to make decisions about where to enter or exit positions.
Volatility Zones (HVL): The High Vol Level($550) marks a zone where price swings could become more unpredictable, which is critical for risk management.
On top of the Net GEX Chart we can also analyze Net Gamma Exposure across multiple Expirations. This is very important as we can monitor 0DTE Options Flows and Reaction Zones. You can access this chart by using the /netgex_multiexpiry command on the Query Bot.
Morning Preparation with MenthorQ 98
This is how we can use this chart:
Anticipating Price Reactions: By studying GEX across different expirations, traders can anticipate how the asset might react at certain strike prices during different trading sessions. This is especially useful near major expiration dates or Mopex (monthly expiration).
Volatility Management: Knowing where negative GEX clusters are across multiple expirations helps traders avoid-or take advantage of-potential spikes in volatility.
Enhanced Strategy Development: This multi-expiration GEX data enables traders to layer their trades around multiple key levels and expiration dates, improving the precision of their strategies.
5. Swing Trading Model
Then we want to look at our Swing Trading Model. We have two time horizons: 5 days and 20 days. You can access it by using the commands: /swing_5d and /swing_20d. You can also add the Swing Levels to TradingView.
Predicts Key Levels for Entries and Exits: The upper band, lower band, and risk trigger provide clear price targets that day traders can use to set entry, exit, and stop levels.
Upper Band: The upper band gives day traders a target for price resistance. If SPY nears this level, it may encounter selling pressure, and traders might look to take profits or initiate short positions.
Lower Band: (Not visible on this portion of the chart but typically shows as a lower boundary) The lower band is the opposite of the upper band and acts as a support level. Traders could use it as a potential buy signal or target for covering short positions, expecting a bounce.
Risk Trigger: This level indicates a key price point where the model expects an important reaction, either as a support or potential breakdown level. Day traders can use this as a decision point, either to tighten stops or prepare for larger moves.
6. Gamma Levels on VIX
After looking at our asset we want to confirm our analysis by looking at the VIX Index. In particular we can look at the VIX Matrix.
Morning Preparation with MenthorQ 100
Understanding GEX and DEX for VIX options helps traders predict upcoming volatility spikes or calming periods. For example, if GEX is negative and DEX is high, traders can expect heightened volatility, which can influence decisions in both options and futures markets.
The VIX is a direct reflection of market fear and uncertainty. By observing the call resistance and put support levels, traders can get a sense of how much fear (or calm) the market is pricing in at different VIX levels.
Large GEX and DEX values suggest that institutional players are making significant hedging moves, which can influence both VIX options and the broader market. Traders can use this information to manage their positions effectively, particularly during major market-moving events.
The chart gives a granular view of volatility expectations across multiple expirations, helping traders position for both short-term swings and long-term trends in market volatility.
7. CTAs and Systematic Models
The last step is to look at the MenthorQ CTAs Funds Model. Systematic Funds and CTAs are key drivers of liquidity and monitoring their flows is key for any investors. With this model we simplify how you can analyze their liquidity and positioning.
Morning Preparation with MenthorQ 101
This is how we can read the chart:
CTA Position Today, Yesterday, and 1 Month Ago: These columns show how much CTAs are currently positioned in each index, today, how much they were positioned yesterday, and one month ago. This helps traders and analysts track the evolution of CTA positions over time. For example, in the E-Mini S&P 500 Index, there was a slight decrease in the position from yesterday to today, but the position has increased significantly from one month ago. This shows that CAs have been building a long position, potentially influencing upward market moves.
Percentile (1M, 3М, 1Y): These columns indicate how current CTA positions compare to historical positions over 1 month, 3 months, and 1 year. Percentiles show how extreme the current positions are compared to historical data. For example, the E-Mini S&P 500 Index has a 1M percentile of 0.29, meaning the current position is in the 29th percentile over the last month, which suggests it is a relatively moderate position. Higher percentiles indicate more extreme positioning, which can precede large price moves if CTAs start reversing positions.
3M Z Score: The Z score tells us how far the current position is from the mean position over the last three months. A high or low Z score can indicate overbought or oversold conditions. For instance, the E-Mini S&P 500 Index has a Z score of -1.30, indicating that the current CTA position is significantly lower than the 3-month average, suggesting that the index might be oversold and could see buying pressure if CTAs reverse positions.
In this guide we look at 0DTE Options Term Structure. When trading Zero Days to Expiration (0DTE) options, understanding the term structure of options volatility is very important.
The term structure refers to the relationship between the implied volatility (IV) of options with different expiration dates. It provides a snapshot of how the market expects volatility to evolve over time, which is particularly relevant for 0DTE traders who are focused on the immediate price movements of an underlying asset.
In a typical term structure, implied volatility tends to vary depending on the time until expiration. For instance, options with longer expiration dates might have lower implied volatility compared to those that are set to expire soon. This variation occurs because short-term options are more sensitive to upcoming events or news that could affect the underlying asset’s price.
For 0DTE traders, the term structure offers valuable insights into how the market perceives risk on the expiration day. By analyzing this structure, traders can identify opportunities to capitalize on price movements or protect themselves against potential volatility.
0DTE Options Term Structure 103
Term Structure and SKEW
Take a look at our Video Tutorial on how to leverage Term Structure for Options Trading.
How to Analyze Term Structure for 0DTE Options
Understanding the term structure is essential for making informed decisions in 0DTE trading. Here’s how you can leverage it.
1. Identifying Implied Volatility Spikes
One of the key benefits of analyzing the term structure is identifying spikes in implied volatility for 0DTE options compared to longer-dated options.
A spike in IV for 0DTE options suggests that the market is anticipating a significant price movement on the expiration day. This could be due to various factors, such as an impending economic report, earnings release, or geopolitical event.
For traders, a higher IV in 0DTE options presents both opportunities and risks. On one hand, it indicates that there might be substantial price swings, which can be profitable if you’re positioned correctly. On the other hand, it means that options are more expensive, which can increase the cost of entering trades. Understanding these dynamics helps traders decide whether to buy or sell options based on their risk appetite and market expectations.
2. Arbitrage Opportuinities
Differences in IV between 0DTE options and those expiring shortly after can present arbitrage opportunities.
For example, if 0DTE options are priced with unusually high implied volatility compared to options expiring a day or two later, a trader might consider selling the 0DTE options while buying the slightly longer-dated options. This strategy allows traders to take advantage of the temporary mispricing and lock in profits as the market corrects itself.
MenthorQ’s tools can help identify these discrepancies in the term structure, providing traders with real-time data to spot and execute on these opportunities swiftly.
3. Risk Management
The term structure also reveals the risk premiums embedded in 0DTE options. If the term structure shows a sharp rise in IV for 0DTE options, it indicates that the market is demanding a higher risk premium due to anticipated events or uncertainty. Traders can adjust their risk management strategies accordingly, possibly by hedging their positions or reducing exposure.
By monitoring the term structure, traders can better understand the risks they are taking on when trading 0DTE options and adjust their strategies to mitigate potential losses.
In this Guide we will go through 0DTE Options Trading Strategies. The key to success lies in understanding and managing the inherent volatility of these instruments. Unlike traditional options, which might have weeks or months before expiration, 0DTE options are set to expire on the same day they are traded.
This creates a unique set of circumstances where the option’s value is primarily driven by the price movements of the underlying asset, with almost no time value left.
Volatility plays a significant role in 0DTE options trading. As these options have no remaining time value, they become extremely sensitive to changes in the underlying asset’s price.
A small move in the underlying asset can result in a large percentage change in the option’s price, making 0DTE options highly attractive for traders looking to capitalize on short-term market movements. However, this high sensitivity also means that 0DTE options can be quite unpredictable, requiring traders to adopt a structured and disciplined approach.
Key Strategies for Trading 0DTE Options
To navigate the volatility of 0DTE options effectively, traders must employ a combination of strategy, risk management, and the right tools. Here are some key strategies that can help traders maximize their success when trading 0DTE options.
1. Scalping and Day Trading
Given the extremely short timeframe of 0DTE options, scalping and day trading are popular strategies. These approaches involve making quick trades to capture small price movements throughout the day.
Since 0DTE options are highly responsive to changes in the underlying asset’s price, scalping allows traders to take advantage of these rapid shifts. However, this strategy requires a keen eye on the market and the ability to take quick decisions.
2. Selling Credit Spreads
Another effective strategy for 0DTE options is selling credit spreads. This involves selling an option and simultaneously buying another option with the same expiration date but a different strike price. The goal is to collect the premium from the sold option while limiting potential losses with the purchased option.
Selling credit spreads is particularly useful in a high-volatility environment, as it allows traders to benefit from the rapid time decay of the sold option while managing their risk exposure.
3. Iron Condors
Iron Condors are a more advanced strategy that involves selling a put spread and a call spread with the same expiration date, but different strike prices. This strategy is well-suited for 0DTE options because it allows traders to profit from a range-bound market, where the underlying asset’s price stays within the expected range.
The iron condor strategy benefits from time decay, which is accelerated in the final hours of trading, making it an attractive option for traders who anticipate low volatility near expiration.
4. Hedging with Futures or ETFs
Hedging is an essential component of any trading strategy, especially when dealing with the high volatility of 0DTE options. Traders can hedge their positions by using futures contracts or ETFs (Exchange-Traded Funds) that track the underlying asset.
For example, if you’re trading 0DTE options on the S&P 500, you could use the SPY ETF or ES Future to hedge against adverse price movements. This approach helps protect your capital while still allowing you to participate in the potential upside of 0DTE options.
MenthorQ Tools for 0DTE Traders
At MenthorQ, we understand the complexities of trading 0DTE options, which is why we provide a suite of tools designed to help you navigate this volatile environment.
Our platform offers advanced models, allowing you to track key indicators such as gamma levels, skew, and term structure for 0DTEs Options.
1. Tracking Gamma Levels
Gamma is a measure of the rate of change in an option’s delta, which represents the sensitivity of the option’s price to the underlying asset’s price. 0DTE options have high gamma, meaning their price can become very reactive to small changes in the underlying asset’s price.
You can access our Primary and Secondary Levels as well as our 0DTE Levels. You can then monitor our 1D Expected Move Indicator that can provide insights on the daily expected volatility of the asset.
Skew refers to the difference in implied volatility between options at different strike prices. By analyzing the skew, you can gauge market sentiment and identify whether traders are paying a premium for puts or calls as the expiration approaches. This insight can be invaluable for setting up trades that take advantage of market biases or mispricings. Read more about the MenthorQ Skew.
We offer 3 types of Skew: 0DTE Skew, 1 Month Skew and 3 Months Skew.
0DTE Options Trading Strategies 108
3. Understanding Term Structure
The term structure of options volatility provides a view of how implied volatility is distributed across different expiration dates. For 0DTE traders, focusing on the term structure helps in understanding the market’s expectations for volatility on the expiration day. Our tools at MenthorQ allow you to analyze this structure and make informed decisions about whether to hold or sell your 0DTE options. Learn More about Term Structure.
0DTE Options Trading Strategies 109
Combining Strategy, Risk Management, and Tools
Successfully trading 0DTE options requires more than just understanding the underlying mechanics; it demands a disciplined approach that combines strategy, risk management, and the right tools. By integrating these elements, you can better navigate the volatile nature of 0DTE options and increase your chances of achieving consistent, profitable trades.
At MenthorQ, we are committed to provide traders with the resources they need to succeed in this dynamic trading environment. Our platform provides the data, insights, and tools necessary to refine your strategies and improve your trading outcomes.
Understanding the concept of Gamma is crucial, especially when dealing with Zero Days to Expiration (0DTE) options. Gamma is a second-order Greek that measures the rate of change in an option’s delta relative to movements in the underlying asset’s price.
For 0DTE options, gamma levels are particularly significant because these options are highly sensitive to even the smallest changes in the underlying asset’s price. As the expiration approaches, gamma tends to increase, meaning that the delta can change rapidly.
This makes 0DTE options extremely reactive and, therefore, both an opportunity and a risk for traders. A high gamma level indicates that an option’s price can swing dramatically with small price movements in the underlying asset, which can result in substantial gains—or losses—within a very short time frame.
How to use MenthorQ 0DTE Gamma Levels and Net GEX
Tracking gamma levels is crucial for anticipating significant price movements and managing risk effectively.
Net GEX Analysis: Our Net GEX chart provides insight into the short-term sentiment within the options chain. Green indicates a higher presence of call gamma, while red signifies more put gamma. This tool acts as an early warning system, helping you anticipate potential market shifts. Watch our Podcast on Gamma Levels and Net Gamma Exposure
Identifying Reaction Zones: Use our tools to monitor the distance between the current spot price and significant reaction zones. Understanding these zones can help you make more informed trading decisions. Learn About Reaction Zones
0DTE Gamma Levels and Skew 116
Net Gamma Exposure (Net GEX) and Market Sentiment
Net GEX is a proprietary metric that shows the net exposure of gamma in the market.
A positive Net GEX value indicates that call gamma dominates, which often suggests bullish sentiment.
A negative Net GEX value signals that put gamma is more prevalent, pointing to bearish sentiment.
By tracking Net GEX, traders can understand market expectations and adjust their positions accordingly.
We also provide Gamma Exposure Levels on 0DTE, Weekly and Monthly Expirations. You can access this data in one single chart grid.
0DTE Gamma Levels and Skew 117
Bot Commands: To access this charts you can use the /netgex or /netgex_multiexpiry command
Market Reaction Zones
Another crucial aspect of tracking gamma levels is identifying reaction zones—price levels where the underlying asset is likely to experience significant movement due to concentrated options activity.
At MenthorQ, we provide tools that help traders pinpoint these reaction zones, allowing for more precise entry and exit points. Reaction zones can serve as early warning signals for potential price reversals or accelerations, helping traders to position themselves advantageously.
Analyzing Open Interest and Volume
Open Interest and Volume are critical metrics for understanding the dynamics of 0DTE (Zero Days to Expiration) options trading. Open Interest represents the total number of outstanding options contracts that have not been settled, providing insight into the liquidity and activity levels of specific options.
High Open Interest in 0DTE options can indicate significant market interest and potential for substantial price movement as traders adjust positions rapidly throughout the trading day.
Volume, on the other hand, reflects the number of contracts traded within a given period. For 0DTE options, high volume signals active trading and can lead to increased volatility, as these contracts are highly sensitive to market movements.
Together, Open Interest and Volume offer valuable information about market sentiment, potential price action, and the underlying forces driving short-term options trading.
We provide different charts for Open Interest and Volume within the Membership. These are the Bot Commands:
/voloi – provided the Volume and Open Interest data for All Expirations
/voloi_0dte – provides the Volume and Open Interest data for 0DTE Expiration
/voloi_1dte – provides the Volume and Open Interest data for the next Expiration
0DTE Gamma Levels and Skew 118
What Is the 1D Expected Move Indicator?
This tool forecasts the next day’s price movement by analyzing implied volatility, providing a projected trading range that is invaluable for intraday trading and risk management. Learn More.
How to Use the 1D Expected Move Indicator Daily Trading Band: Use the projected price range to identify key support and resistance levels for the trading day, guiding your 0DTE strategies.
0DTE Gamma Levels and Skew 119
Learn How to Use the 1D Expected Move Indicator. Watch Now
Bactesting Results of 1D Expected Move Indicator. Learn More
Bot Commands: /keylevels
Positive and Negative Gamma
It is very important for Traders and Investors to understand the difference between Positive and Negative Gamma when trading any asset, because these gamma conditions can significantly impact their investment strategies and risk exposure.
In Positive Gamma the Market is Long Gamma and we can expect lower volatility
In Negative Gamma the Market is Short Gamma and we can expect higher volatility
We can use the Option Matrix to identify whether the market is in a positive or negative gamma environment, helping you gauge potential price stability or volatility based on the aggregated positioning of options traders.
0DTE Gamma Levels and Skew 120
Watch our use cases videos:
How to prepare for a Market Sell Off and Increased Volatility.Watch Now
Skew refers to the difference in implied volatility (IV) between options at different strike prices. In 0DTE trading, skew analysis helps you gauge market sentiment and identify potential trading opportunities.
In a perfectly balanced market, the Implied Volatility across different strikes would be similar. However, in reality, this is rarely the case. Skew occurs when there is a noticeable difference in Implied Vol, indicating that traders are willing to pay more for options on one side of the market—either puts or calls—based on their expectations of future price movements.
For 0DTE options, skew becomes an even more critical factor. As the expiration date approaches, any existing skew can intensify, leading to significant price disparities between options with different strike prices.
0DTE Gamma Levels and Skew 121
How to Analyze Skew with MenthorQ
Market Sentiment: Use skew analysis to understand whether traders are leaning towards calls or puts as expiration approaches, providing insight into market expectations. Watch Video
Strategy Optimization: Identify and capitalize on overpriced options using strategies like iron condors.
Stocks Screeners allow investors to filter and search for specific stocks or securities that meet predefined criteria. These criteria can be based on various factors, including fundamental, technical, and other quantitative parameters. Stock screeners allow investors to filter and sort through a vast universe of stocks quickly and never miss an opportunity.
With the Menthor Q Screeners you can now receive a daily list of stocks matching quantitative parameters. By leveraging our quantitative models you can now find the most relevant assets and enhance your research.
Why use Menthor Q Screeners?
Together with Gamma Levels, the Options and Momentum Screeners are a powerful tool to:
✅ Screen for Stocks leveraging quantitative factors coming from the options market
✅ Screen based on primary Key Levels and market positioning
✅ Identify stocks that are experiencing market momentum
✅ Combine the power of Technical Analysis and Option Data to enhance your trading
