Finding Intraday Reversals with Net Drift and Net Flow

It is possible to identify reversals (tops and bottoms) using a combination of Net Drift and Net flow.

From the Net Drift documentation

"The Net Drift tool allows you to see the net premium by sentiment in real-time for the market at large, sectors/industries, all individual symbols that trade options, and individual contracts."

From the Net Flow documentation:

"… With this in mind, we can utilize abnormal put and call spikes on the Net Flow chart to identify when the market activity increases in fear or confidence."

Those two links provide an excellent, detailed explanation of how the tools work.

On Friday 22 Nov 2024, into market open, price was 5945. There was significant exposure at 5950, 5975, and 6000 for that day’s expiration. Often, these “whole number” strikes can provide a general road map of where price may end up.

(Time in CT)

At 1:23p ET, when SPX was near 5970, just under the 5975 level with significant gamma exposure, ~$600M in trades were placed, represented in Net Flow as an outsized premium spike. Net Drift showed a significant divergence in call vs. put premium, leading to a 17pt drop. Price retreated to just above the lower strike (5950) identified at the start of the session.

At 3:22p ET, when SPX was near 5950, ~$900M in trades were placed. As in the previous exmample, this was represented in Net Flow by an outsized premium spike. However, Net Drift showed a significant increase in net call premium relative to its previous value. Price squeezed to 5972 into the end of the session, just below the middle strike (5975) with significant gamma exposure identified at the open.

Net Drift and Net Flow, when combined with an understanding of Gamma Exposure, are indispensable tools for day trading. While the strong price pinning suggested by outsized gamma exposure at the 5950, 5975, and 6000 strikes for the session limited price movement, these signals still presented actionable opportunities for both buy-side and sell-side traders.

This post will be periodically updated with clear examples of when Net Drift and Net Flow indicate intraday reversals.