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 Levels Conversion is one of the Key Feature of all MenthorQ Indicators. The Levels Conversion is available on TradingView, NinjaTrader, Sierra, ATAS, Quantower and the other integrations.
What is Levels Conversion?
Levels conversion helps traders overlay price levels from indices like SPX, QQQ, and NDX onto futures charts (ES, NQ, etc.). Since futures and spot prices differ, adjustments using a spread or ratio ensure accuracy. Futures prices trade at a spread or ratio to their respective indices. Without conversion, levels will be misaligned due to price differences.
Check out our tutorial guide.
What are common levels conversions
These are some of the common Levels Conversions:
SPX Gamma Levels to ES
SPY Gamma Levels to ES
QQQ Gamma Levels to NQ
NDX Gamma Levels to NQ
SPX Intraday Gamma Levels to ES
QQQ Intraday Gamma Levels to NQ
SPX Swing Trading Levels to ES
QQQ Swing Trading Levels to NQ
GLD Levels to GC
DIA Levels to YM
USO Levels to CL
NVDA and MAG7 Levels to QQQ
What’s the Difference Between Spread and Ratio?
Spread = ES1 - SPX (absolute point difference)
Ratio = ES1 / SPX (proportional difference)
Formulas for Futures vs. Spot Levels Conversion
1. Understanding the Price Difference
Futures prices (e.g., ES, NQ) do not trade at the same price as their respective indices (e.g., SPX, NDX). This is because of factors like fair value, interest rates, and dividends.
To properly align levels, we need to adjust for this difference using one of the following:
Spread (Absolute Difference)
Ratio (Proportional Difference)
2. Formula for Spread (Absolute Adjustment)
This is the formula to calculate the Spread. Spread = Futures Price − Index Price
Example:
If:
ES1 (S&P 500 Futures) = 5000
SPX (S&P 500 Index) = 4975
Then: Spread = 5000−4975 = 25 points
3. Formula for Ratio (Proportional Adjustment)
We can also use the Ratio and this si the formula: Ratio = Futures Price / Index Price
Example:
If:
ES1 = 5000
SPX = 4975
Then: Ratio= 5000 / 4975 = 1.005
Example: Converting QQQ Levels to NQ
Once of the common use case is to convert levels from the index or ETFs to the Futures. In this example we will be converting QQQ Levels to NQ. Let’s say that QQQ quotes at $500 while NQ is trading at 21000.
Now let’s calculate the Ratio. To calculate the ratio we use the formula above and divide NQ Price by QQQ price.
Ratio= 21000 / 500 = 42
Now let’s look at the levels for QQQ: Call Resistance, 515, Put Support, 480, HVL, 510, 1D Min, 484.5, 1D Max, 499.08, Call Resistance 0DTE, 490, Put Support 0DTE, 486, HVL 0DTE, 489, Gamma Wall 0DTE, 490, GEX 1, 485, GEX 2, 495, GEX 3, 484.78, GEX 4, 489.78.
To convert these levels to NQ we need to multiply each level by the ratio of 42.
MenthorQ Levels Conversion 6
Manual Ratio vs Auto Ratio
The MenthorQ Level Indicators already manage the conversion. The indicator allows manual or auto conversion.
1. Manual Conversion (User-Controlled)
What It Is:
The trader manually calculates the spread or ratio and updates their indicator settings.
How It Works:
At the start of the trading day, the trader checks the latest price difference (spread) or price proportion (ratio) between futures (e.g., NQ) and the underlying index (e.g., QQQ).
They then input this value into the indicator to correctly align levels.
Formula Used:
Spread:NQ Price - QQQ Price
Ratio:NQ Price ÷ QQQ Price
Example:
At the market open, QQQ is trading at 500, and NQ is at 21,000.
The trader calculates the spread (21,000 – 500 = 20,500) and enters it into the indicator.
If using the ratio method (21,000 ÷ 500 = 42), they input 42 into the indicator instead.
The process needs to be repeated daily or whenever necessary to stay accurate.
✔ Pros: ✅ Allows traders to manually verify accuracy. ✅ Simple and effective for short-term trading. ✅ Works well when the spread remains stable.
✔ Cons: ❌ Time-consuming (must be done daily or intraday). ❌ Prone to human error. ❌ Doesn’t automatically adjust for intraday fluctuations in spread/ratio.
2. Auto Conversion (Indicator-Driven)
What It Is:
The indicator automatically calculates the spread/ratio based on the previous day’s closing price and applies it to today’s levels.
How It Works:
The indicator fetches the last closing price of both the futures (e.g., NQ) and the underlying index (e.g., QQQ).
It computes the spread or ratio and applies the adjustment automatically.
As the market opens, levels are already adjusted without user intervention.
Formula Used:
Spread: Previous Close (NQ)−Previous Close (QQQ)
Ratio: Previous Close (NQ)Previous Close (QQQ)
Example:
Yesterday’s close:
QQQ closed at 500
NQ closed at 21,000
The indicator automatically calculates:
Spread:21,000 - 500 = 20,500
Ratio:21,000 ÷ 500 = 42
The indicator applies the updated values without user input.
✔ Pros: ✅ No manual updates required—saves time. ✅ Eliminates human error in inputting values. ✅ Ensures consistent and accurate level placement. ✅ Best for intraday traders who want real-time accuracy.
✔ Cons: ❌ Uses the previous day’s closing values, which might not reflect real-time fluctuations. ❌ If the spread changes significantly intraday, the levels could become slightly misaligned.
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 18
Paste the indicator in the MotiveWave Extensions folder within your computer.
MotiveWave Integration 19
Unzip the File into the folder
MotiveWave Integration 20
This is how the folder should look like after the Zip file has been extracted
MotiveWave Integration 21
Add the Indicator to your chart by looking at the menu: Study – Custom
MotiveWave Integration 22
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 23
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 26
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 34
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 35
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 36
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 37
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 38
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 41
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 48
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 49
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 50
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 51
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 52
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 Quantower. You can now access Gamma Levels and Blind Spots Levels on the platform. You can now integrate the MenthorQ data into Quantower directly via API.
What is Quantower?
Quantower is a comprehensive, multi-asset trading platform designed to cater to both novice and professional traders. It offers a wide array of analytical and trading tools, supporting various asset classes such as equities, futures, options, ETFs, and Forex. Check out the Website.
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 Auto or Manual Ratio
How to integrate MenthorQ Levels on Quantower
Integrating the MenthorQ Levels into Quantower is very simple. To do so follow these Steps:
Log into your Account Dashboard and go under Integration. Locate the Quantower section and download the indicator.
Paste the indicator in the following folder within your computer: C:\Quantower\Settings\Scripts\Indicators
Fill up the Activation Form. You will be need to confirm your Machine ID
Check out the Video Tutorial.
Configure the Indicator on Quantower
Once downloaded the indicator go into your Quantower Indicator List and look for the MenthorQ Levels Indicator.
Quantower Integration 60
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.
Quantower Integration 61
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.
You can customize each level font, style and color directly from the Settings Tab.
Quantower Integration 63
Step 4. Levels Conversions
Within Quantoweryou 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 works with Auto and Manual Ratio. For more information about Levels conversion check out our Tutorial Videos on our Trading Integrations Course.
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 70
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 71
Step 4. Indicato on the Chart
Now once you click apply your indicator will be in the chart.
Thinkorswim Integration 72
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 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 77
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.
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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.
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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
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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.
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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
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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.
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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.
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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.
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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
