If you’re serious about trading, understanding gamma structure is crucial.
Gamma pockets — those key price levels that attract market attention — can give traders short-term insights into where the market might move next.
Today, I’m going to break down why gamma pockets like the $585 and $590 levels on the S&P 500 ETF (SPY) can help you get a leg up on your trades.
Gamma is all about positioning, particularly when it comes to options.
When large numbers of options cluster around certain strike prices, the market tends to be drawn toward those levels. These gamma pockets act like magnets — the closer we get to them, the more likely the market is to gravitate there. It’s the kind of institutional force that we, as traders, can leverage.
Take the 585 level on the SPY, for example. When the market approaches this gamma pocket, there’s a high probability it will get pulled in, and once we hit that level, it becomes a battleground.
If the market shows strength and breaks through, it can open the door for further upward movement, possibly all the way to the next gamma pocket — in this case, 590.
But it’s not just about blindly following the numbers.
Once we hit these key gamma levels, we have to watch closely for what happens next. Does the market bounce off the level, or does it stick and break through? This reaction gives us insight into whether the market has enough momentum to continue moving higher or if it’s going to stall out.
Recently, I’ve been watching the 585 level closely. It’s acted as both a resistance point and a potential launching pad for higher prices. If we can break above it, the next major level is 590, and from there, we could even see 600 in the near future. However, these gamma pockets aren’t just about predicting upward movement. If the market fails to break through and gets rejected at 585, we could see a pullback as traders reassess their positions.
It’s important to remember that gamma is a short-term phenomenon — we’re not talking about long-term market predictions here. We’re focusing on what’s happening over the next few days or weeks. That’s why keeping an eye on gamma pockets is an essential part of my trading strategy.
So, what’s the takeaway? When you see gamma pockets forming around key levels like 585 or 590, pay attention. These levels can act as short-term targets or resistance points, and they offer clues about where the market is headed. Use them to your advantage, and don’t be afraid to take action when the opportunity presents itself.
I’ll be watching these levels closely, and I recommend you do the same. If we break above 585, there’s a good chance we’ll see 590 by the end of the week — and who knows, maybe even 600 not long after.
Kane Shieh
Kane Shieh Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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Stated results are from hypothetical options applied to real published trades from 10/30/23 – 10/21/24. The result was a 95.75% win rate on 259 trades, an average return of 12.3% including winners and losers and average hold time of less than 24 hours. Performance is not indicative of future results. Trade at your own risk and never risk more than you can afford to lose.
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