An article explaining in detail how market makers promote the rise of BTC
Original - Odaily
Author - Nan Zhi
Yesterday, Alex Thorn, research director of the crypto financial services company Galaxy Digital, posted on the Buy back spot to maintain delta neutral. This should amplify the explosiveness of any near-term short-term gains.”
What is the operation of shorting Gamma and why it will boost the rise of BTC? Odaily Odaily Japan will reveal it in this article.
Note: Readers of this article need to have a basic understanding of options. Some conditions only give conclusions and do not involve the reasons and processes. If you are interested in in-depth, you can explore on your own.
Basic concepts and definitions explained
Gamma
Gamma: The sensitivity measure of option Delta. The greater the Gamma, the greater the Delta fluctuation rate.
Delta：A measure of the sensitivity of the option price relative to the underlying price. For example, if a certain BTC option Delta= 0.6, then if BTC rises by 1 U, the option price will rise by 0.6
When is Gamma positive?: Positive for those who buy call and put options, and negative for those who sell them.
How to Short Gamma: Selling an option is shorting Gamma.
Delta Neutral
Delta Neutral: if aportfolioconsists of related financial products and the value of whichNot affected by small price changes in the underlying asset, such a portfolio has delta neutral properties
Generally speaking, market makers do not obtain income through the rise and fall of prices, but obtain income from price differences and handling fees. Therefore, market makers usually need to make their investment portfoliosKeepDelta Neutral.
On the other hand, market makers often actively purchase and trade as Makers due to market liquidity needs, which will lead to changes in their delta, so market makers needPurchase another financial product as a hedge, keeping Delta neutral.
Market makers help rise
Current Situation 1-Spot Rise: BTC prices have continued to rise in recent days without any obvious correction.
Current Situation 2 - Market makers are shorting Gamma: First, Alex Thorn put forward a data Using Amberdata data, we can calculate the positions of market makers. Our analysis shows that market makers are increasingly shorting Gamma, with a starting price of approximately For $28,500 and above.
Demand: The current situation 1 is superimposed on the current situation 2. The price increase causes the market makers delta to no longer be neutral, and more and more short gamma, thus creating a continuously increasing demand to purchase spot to achieve delta neutrality.
Conclusion: Alex Thorn said: “After the price reaches $32,500, the market maker needs to buy $20 million in delta for every subsequent 1% increase.
Gamma rising
The value of Gamma is usually affected by the following conditions, which may cause Gamma to increase:
Shortening of remaining term: When the remaining term of an option becomes shorter
The exercise price is close to the underlying asset price: When the exercise price of the option is close to the market price of the underlying asset
Increased volatility in the price of the underlying asset: High volatility typically causes Gamma to rise
Alex Thorn said: “As spot prices go higher, market makers need to buy back more and more Bitcoin,This should increase if any gains occur in the near termExplosive. “As the market rises, the amount required to hedge also rises, further fueling the market’s upward trajectory.
Market maker support range
Additionally, Alex Thorn said: “Market makers are long Gamma in the $26,750-$28,250 range. When you are long Gamma and spot drops, you also have to buy back spot to remain delta neutral. So, as options market making With traders buying back Delta, any short-term px downside move will face resistance.
This is a good support for the bulls because if spot prices move moderately higher, short gamma covering could see it move sharply higher soon, but if prices move lower, long gamma covering could provide some support and limit the near-term downside. .
This part is similar to the previous basic principle. When the market maker is long Gamma, the price drop will decrease its Delta, so it is necessary to purchase spot to increase Delta and maintain neutrality. The price suggested by Alex Thorn amounts to a potential support range.
Conclusion
Or as DWF Labs said “A market is bullish when every piece of information is viewed as a bullish signalThe position of market makers may be a potential main force in the rise, but this article is more aimed at briefly explaining the impact of market makers positions on the market. Alex Thorns views and price ranges are for analysis only and are for readers reference only.
