This is an automated archive made by the Lemmit Bot.
The original was posted on /r/Superstonk by /u/BetterBudget on 2025-01-20 22:34:13+00:00.
Hey everyone, it's Budget here. I got a lot to go through here so I'm going to keep it brief and run right through it.
Vol is bananas 🍌🍌🍌
This past week there were two isolated long volatility events, so let's look at what happened to $GME from a volatility perspective and then dive into what the vol forecast says for $GME in the near future🔮
Last week's review 🔎
In the last public forecast, I shrank the horizon of the once-a-week forecast to about a few hours/to about a day because of how flippy the market had become, making intraday data mandatory to manage volatility exposure like with options.
It's part of the reason for the tldr being digestion (basically sideways) and to chill, leave volatility be, which is what we saw Monday with sideways price action. Regardless, as pointed out in the last public forecast, $GME's volatility was stretched, and specifically, it was the upside vol.
Mathematically, volatility will never go up forever, it will never go to zero, and over the long run, it gravitates towards its average, which is referred to as mean reversion.
I can't speak for LC here, but there is at least an abstract overlap, to what I was pointing out in volatility last week and what he may be hinting at.
Volatility was spent, the calls did their work. They forced hedging by the short-volatility players on Monday and Tuesday, squeezing $GME up to the $34 range, in line with volatility forecast. The greedy $35 target was almost hit (off by about 50 cents), but that left $GME price vulnerable. That price action was vol assisted.
$GME almost spent a month above $30, with plenty of buy-side liquidity from market makers short $GME volatility, on supportive GEX levels like $30 and $31.
Many forecasts ago, back in early December, I pointed out specifically that I wanted a retest of $28 before going above $30 because, from a strict TA perspective, $28 was unproven. And worse, there were downside risks going into the new year, as pointed out in that forecast (just read the next paragraph). Lately, I have been dropping hints in Superstonk (1, 2, 3), which I don't often publicly do, as bearish analysis can inflame the community.
In the last public forecast review of the previous week's post blow-off top price-action, there was short-vol happening as soon as Tuesday afternoon, to bring price down from that blow-off top high. That was an expression, with skin in the game, from market makers short $GME volatility, that the long vol risk, was, for the time being, spent, no longer a concern. The balloon was empty🎈And it takes time to fill it up before sparks fly ✨
As mentioned in the last public report, technically $GME was entering a Window of Weakness, as soon as Monday morning, and the bot reported that, Monday morning, which I pointed out in Discord for anyone who missed it:
A lot of the structure supporting $GME price, from short vol exposure hedging, which helped keep the momentum going during the Santa rally, was weakening and that creates a risk for trend reversals. And given the macro risks and vol weakening, it was an opportunity for new bears to come into town and play ball with $GME.
Quite possibly Jim Cramer and friends. I don't know. So as the week carried on, an opportunity was seized, as noticed here. That drove $GME down. See this past week's price chart (using 15-minute bars):
You can see the dip that happened on Tuesday that was driven by bears causing a ton of calls' probabilities of expiring ITM to drop significantly. That affected the hedging by short volatility market makers, causing them to close a bunch of long positions on $GME, puking $30 downward, and flipping $30 from support into resistance.
There was a firefight ️🔥️🔥️🔥 It was a vol up price down move:
And as the week moved forward, those OTM calls decayed, applying downward pressure on $GME pinning it to $28 and then eventually down to $27.50, as I called out Tuesday morning:
However, markets are flippy, and a scalping opportunity presented itself right before close on Tuesday. Wednesday at 8:30am EST, the latest CPI report came out, and it was within expectations, inflation was cooling, which refuted a few macro concerns out there, bringing back a rate-cut to the fold, driving a relief bounce for small caps like $GME, as seen in $IWM (ETF tracking the small caps index Russell 2000):
Now, what happened after was quite validating to the thesis of $GME's price that the last month it was mostly vol-assisted as $GME was sold into that rip as $IWM pushed up, and made higher highs the next couple of days, suggesting macro traders found $GME rich at $28, relative to other small caps.
But, then on Friday, $GME still had plenty of calls out there, and they were 0dte's that were being unhedged, yet price found a footing at $27 with a low of $27.02. That exposed short option players to vulnerability, so they got ahead of that risk, by front-running it, then sold into it. Proof in the pudding, that scalping was the way to play it.
It's been a flippy week!
Let's look at the latest data from the bot 🤖
$GME History📜
🤖 $GME's day-to-day correlation with vol Friday was positive. 🤖
Past 2 Weeks Correlation
Positive Correlation at 85.71%
Past 2 Months Correlation
Positive Correlation at 85.71%
Thoughts
Top-right chart, there is a low forming on vol for this window of risk.
Given the recent price action, the top-left chart makes a lot of sense that overall positive GEX slowed down as negative GEX started to accelerate up. That's something to be mindful of continuation.
Long vol looks a little cheaper, but let's take a look at the risks at play.
$GME Volatility Forecast 🎢 ⬆️
🤖 $GME's volatility is forecasted to go up by Feb 21st representing an opportunity to scalp or swing long options. 🤖
Window of Weakness
Net GEX is decreasing so price is receiving less support into Feb 10th as vol players remain short volatility.
Upside Price Risk
Vol is forecasted to rise, representing upside price risk by Feb 21st.
Thoughts
$GME was in a Window of Support for a bit on Friday. The bot actually reported Window of Support in this report, but I edited it because I can tell, that come Monday morning, it will quickly change right back, probably about 5-15 minutes after open.
Window of Weakness doesn't mean bear. It means a reduction in stabilizing support from short-volatility players, so less liquidity, which makes trends more vulnerable to change, like price losing its foot, slipping down which is what we saw last week Tuesday.
Remember, there is less risk to play in a Window of Support than in a Window of Weakness. I tend to trade mostly in Windows of Support, which happens for about a few days a month, and it's data-driven, not consistent. There's a general rule of thumb when it tends to happen, but you have to follow the data.
OPEX week is not a defacto tailwind. **OPEX week is ...
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