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All right, you bunch of beautiful chickens. It is time for video three of the call options. Market series, baby, we're gon na talk about unhedging calls, because i think this is a really fascinating piece that i actually haven't really seen talked about a whole lot on youtube. In general - and maybe there's not a lot of understanding to be truthful with you, it's something that i haven't really understood that much until i really started digging into some of the meat potatoes of what's actually going on here in the market.

So without further ado. Welcome back to freaking trees, tudors, baby and trey's trades. What is up, how are we doing i like to perform with myself, i'm gon na, find survivors and we're experts, so take what i say with a grain of salt. Obviously, let's get into this video, so unhedging right, i want to make sure that you've seen the first two videos of the series, which is how options market makers work and how hedging works.

So you can really understand what we're talking about here. It's going to be in this playlist that you see here in youtube or whatever so there's two kind of scenarios that can lead to unhedging you've got calls that'll run from in the money to out the money. You've got calls that end up getting sold with some exceptions right, it depends on who's buying who's selling, because sometimes every transaction obviously has a buyer and a seller, but a certain scenario that does end up happening right. So what happens here? Co-Op is running in the money to out the money.

This refers to essentially call options in the money, meaning that the strike price. Here's an example right strike price is above the current market value right. This is in under the market value i should say in the money is under the market value, so 50 would be in the money if it is trading currently at 59 and 26 cents out of the money would be the opposite right. It'll, be 65 bucks right here out the money right, so that means essentially that you are no longer making money on your overall position.

So with that being said, what will happen here is when stocks or call operators run in the money they get hedge full. For the ups right right, our market makers have to buy underlying stock in case these end up getting exercised. Well, if call options run from in the money to back out the money me and there's no longer any risk of these getting exercise. The market makers can essentially dump that stock back into the market or unhedge sell the stock back into the market right.

This is a scenario in which unhedging actually takes place, and i'm gon na show you an example here on the chart for amc here today, because i think it really did end up happening. The other thing that can happen is calls end up getting sold now. This actually creates selling pressure. What call options you initially buy them: it doesn't create oopsies, it doesn't create any actual buying pressure right, but when you sell them and they're in the money it can create selling pressure.

I'm gon na walk you through both of these scenarios, but here's an example of what unhedging actually looks like right check this out. What happened here today in my eyes is an example of unhedging. Now. Why would i say that if you look at the one minute candles on amc here today, what did you end up, seeing my freaking weeble so goofy? So at 59.60 you saw a lot of overall strike prices and call options that were at you know at that time.

In the money. Now we broke down underneath 60 bucks, and you can see here, you had a hard move followed through with a lot of volume. Now that's a pretty critical thing to see because it means that it was a purposeful move right. High volume indicates that either a it's, a technical breakout or breakdown or b there's some sort of other outside source, that's contributing to that overall breakdown and the volume back set up right here.

This is an example of unedging. There are 29 000 and 30 000 call options at 259 and 60 bucks. These ended up getting pushed back out the money, which means the market, makes no longer had any risk there. They can sell that stock back into the market, but this is the end result of that right.

It ends up pushing the stock down right. That's an example right: there calls getting sold what can happen and we'll walk you through that here, a little bit is if you've got ten thousand calls at 60 bucks, and all that you know the market makers hedge for 10 000 that are in the money, but 5 000 of those gets sold, there's no longer risk for those 5 000 contracts right. They already are they're good to go on that, so they don't need that stock. They can sell it back into the market.

I'll walk you through. Each of these scenarios right check. This out, first one call options: don't have the money to out the money, so let's just say that you've got a call option 60, and this goes, you know from 62 dollars and it starts moving back down. Now i draw a zone here of unhedging, because hedging takes place depending on the premium market makers.

You know options, market makers make money on the premium and when they want to unhedge, a position is when the premium is approaching greater profit than the current market value. Right, you always want to manage your risk and that's what they're always watching for is coming up profitable, any sort of trade right. So there's a zone because call options have differing premiums depending on expiration, depending when you buy them depending what the stock is trading at right, so you've got a zone essentially of when call options will get hedged for and unhedged for. So i've drawn that up right here: that's when you will start to see it happen is in a zone of a hedging right.

So, let's just hypothetically say the unhedging zone starts at 61 dollars. It depends on what people paid for the premium right, i'm just giving you an estimate, there's no way. I can all the time i had i'm not a freaking options, market maker, but there's a zone nonetheless, and you enter that zone. You begin the unhedging process right.

So it'll start to drop what what market maker will do is they'll sell their stock back into the market? Someone has to buy it, but it ends up dropping the stock price right. It creates selling pressure. Now this continues until you reach the bottom of the unhedging zone. I can't give you an exact dollar sign right.

It depends on the scenario, but the bottom of that unhedging zone essentially is the highest current price in which people are paying premium for the stock, and that's the last straw on how much they actually have to cover for the overall hedging process that will lead to Essentially, a leveling out effect and no longer any of that really hard sell-off. You really didn't see that here today, i'm thinking you saw a great example of what that looks. Like it's a sad thing to see right, it's obviously not fun to watch if you're long on a stock, oh yeah, zoom out when it doesn't zoom out with amc. I promise you.

This is gon na, be fine, but this is an example. Nonetheless, right, i really do think there's an unhedging process which leads into more people selling right, because people like to sell red people like to buy green. It's just the psychology of how people like to play in the stock market right, but you definitely saw that happen here today and that's an example of what happens. Unhedging zone right, the market value is, is starting to be, you know less worth the premium.

They actually made so there's no more risk. They sell that back into the market. So, let's stock back in the market for anybody that might have exercised their overall calls and it starts to sell off. That's one example right a second one and one that's actually avoidable.

For the most part, depending on some sort of scenario, is when people will sell calls. So if there's ten thousand calls at sixty dollars right, ten thousand overall calls and that six dollar strike and it starts to run in the money, and someone says out there. You know a lot of people say out there, i'm good. I made my profit, i'm going to sell my calls, i'm going to take my premium and maybe roll it into more options.

Maybe you buy stock right, there's a couple different ways. You can play it, but they sell it. Well, now, all of a sudden, if hedge funds out there are not hedge funds, but market makers, hedge for 10, 000 call options which is the equivalent of one million shares, and now you take out five million. You know five thousand of those call offices.

You've only got five thousand, so they only need 500 shares 500 000 shares if they are to be exercised. So what can happen? Is they can actually sell that stock back into the market? This can create selling pressure. This is an avoidable thing right. You guys do what you want to do, but if a lot of people are selling calls at the exact same time, there's no longer that open interest at a certain strike price market makers will dump that stock back into the market.

They just will right and that can create selling pressure. This is an argument, for you know, there's two ways you can play this out to avoid this sort of thing, but this is an argument for why sometimes exercising options is the better road to travel right now? What happens you know? You got 5 000 calls that were sold. Market makers don't need the 500 000 shares anymore, so they start to sell their stock that they actually bought from the market to hedge against the the call options running in the money back into the market. It creates a sell-off.

Typically, this won't be as much of a sell-off as you get back here, but it can be. It depends on what actually ends up happening with these call options right. Is it avoidable, this sort of which situation actually is avoidable? For you know two sort of main ways: what you can do is a you can exercise those calls so there's never the risk of them getting unhedged by the market makers or b. When you sell your calls, you don't want to rule them all into more out the money call options right.

You want to buy underlying stock to essentially hedge against the selling that will take place when market makers will inevitably unhedge. Your overall call that was previously in the money right you want to contribute to buying pressure if you want to continue to see long term or short term or midterm growth in that overall stock and see that continuation of momentum right, that's an avoidable thing now. This is something that's really not that heavily talked about and honest to god. I haven't talked about it so literally today, but this is a scenario in a literal.

You know factual situation where this sort of thing can happen right where you can actually contribute to selling pressure without even knowing it, if you're, not careful right. So if you want to contribute to buying pressure right, you guys know what you want to do. I'm not a financial advisor whatever you know you got, you got to do what you got to do, but selling calls that are in the money. Please, if you want to see continuation of momentum in any sort of trade you have to either a exercise or b contribute some of your profits to stock, or you will hurt the price action.

Not in that you know, in and of yourself, you didn't do anything wrong. You just capitalize on profits right, but market makers will unhedge their positions. They just will that's that's what they do. They manage the risk.

That's their job, they're, trying to come out profitably. Sort of trade, and if they don't have to take risk on 500 000 shares they just won't they'll, sell it back as simple as it gets. It is well they made money on it right if they, hedge for 500 000 shares at 60 bucks and all of a sudden boom, 500 000 shares are gone. They may profit on 500 000 shares.

So of course, they'll sell. 62. That's just common sense! That's what that's, what they're gon na do they'll be like hell, yeah. I just made freaking two dollars a share of 500 000 shares and they'll sell that instantly and that contributes to selling pressure right.

So that's that's kind of the walkthrough talk to them. What unhedging looks like on you know any overall stock in the market, so that's kind of the third. You know video for this overall series, i'm going to cap it off with a fourth and final video talking about the best way to contribute to a gamma squeeze. If that's something you're interested, obviously i'm not a finance advisor.

Everybody makes your own financial decisions. That's your financial responsibility, but i'm gon na lay out essentially a picture-perfect scenario for you on how to have the perfect gamma squeeze setup. So that's what i've got for this video blah blah blah blah blah blah drop a like subscribe. Everyone do my friends catch on the next one: light taps baby, much love and peace.

By Trey

21 thoughts on “What is unhedging and how does it work? – gamma series 3/4”
  1. Avataaar/Circle Created with python_avatars Wayne Bale says:

    Many life's has been transformed, many debts has been paid off through investment with Miss Nora Adamz its never too late to get started, never depend on a single source of income.

  2. Avataaar/Circle Created with python_avatars Devin Bautista says:

    Shame to see Apes not watch these videos then go ask Matt these questions all day in live. I love my apes, but i really want us all to care a bit more about understanding and taking responsibility for our investments…

  3. Avataaar/Circle Created with python_avatars FJRPilotNC says:

    NFA – The best strategy is to NOT exit your options on expiration day. Exit 7-21 days before expiration and exercise and/or roll into new options that expire in 21-60 days (~45 is ideal).
    That way you're not negatively affecting the stock price on expiration day and are able to select a good time to exit (like on a +20% day), then wait for re-entry on a down or flat day with lower IV. As an added bonus, you don't take the hit on the high accelerated theta decay (time value loss) in the final week or 2 before expiration.

  4. Avataaar/Circle Created with python_avatars Esther Rage says:

    Really reading about people making over $250,000 monthly from passive income investments even in this crazy market, any tips and pointers on how to make substantial passive income would be appreciated.

  5. Avataaar/Circle Created with python_avatars L3P Scape says:

    So I was 100000% subscribed to you and then I just checked I wasn't! This is a beautifully executed video Trey! Alot of the newcomers don't understand the depth and mental game plan that goes on. Love from Apestralia

  6. Avataaar/Circle Created with python_avatars Thomas Gabriel says:

    Out of curiosity, since the market makers objective is ultimately to profit and make money, whats stopping them from deciding 5 minutes before close to dump shares they hedged to drop the price and make call options go otm? Say there's 10k calls at 60 that they hedged for and just before close of the strike date the price is around $60.10. Could they then theoretically just wait till the last couple minutes and then dump off those 1 mill shares they hedged in order to manipulate the price to drop under 60 without time for those million shares to be bought up fast enough to bring it back up before close? That way they could knock all those calls OTM at the last minute and make their profits off all the premiums from those $60 calls. It would be blatant manipulation, but if they were so inclined could they do that? And would there be rules in place to prevent that? I have 0 faith in the SEC or any other agency to stop or even punish the majority of illegal activities going on in the market, so im guessing if they wanted to do something like that they could probably make it happen.

  7. Avataaar/Circle Created with python_avatars Jordan Harris says:

    This is the perfect time to venture into the crypto market, especially considering the current price crash… There is no better time than now to buy as much crypto as possible.

  8. Avataaar/Circle Created with python_avatars youre momma says:

    Options are simple:

    Where is the stock going(price) and how long will it take to get there(time).

    Buy AMC STOCK not options and HODL, this is how we bring the hedgies to there knees

  9. Avataaar/Circle Created with python_avatars thorin111063 says:

    Perhaps I am confused about options. Every option that is sold by an individual, is purchased by Market Makers? I was under the impression that options are traded like stocks, I sell an option because I am happy with my profit, another individual buys that option because he thinks it's still going to go up.

  10. Avataaar/Circle Created with python_avatars Michael McBride says:

    Buy green sell red exactly the opposite of what to do……buy on the red days and sell on the green…. I’m selling call options and cycling my premiums back into buying more stock….

  11. Avataaar/Circle Created with python_avatars Eric says:

    Question? Couldn’t people exercise their call options at $60 anyways? Basically they just pay whatever difference of the current market. If it’s at $59.26, basically they are paying an extra .74¢ times 100 shares right?

  12. Avataaar/Circle Created with python_avatars Dan McBurney says:

    GME is in bearish slide right now. If you sell a single GME share, you can buy 3.5 AMC shares. So when AMC goes to the moon, you will make 3.5 times more profit vs. GME. Seems like a no brainer to me! AMC is the much better play.

  13. Avataaar/Circle Created with python_avatars Omer Eroglu says:

    I’m glad you gave this explanation, this is exactly what’s been happening on fridays. Here is what I do personally- ex: I buy 10k worth options than sell for $15k, I made $5k profit, I buy $2.5k worth stock and I even increase my options budget, or have more cash. This is not financial advice, only my personal opinion.

  14. Avataaar/Circle Created with python_avatars Boeing757 says:

    Unbelievable education from you Trey.. Thank you so much for your continued passion, support and ability to teach us apes the game which is the market

  15. Avataaar/Circle Created with python_avatars Dennis Burd says:

    Could we all buy options already in the money monday to make them buy shares? Only makes sense if stock price increases more than option premium cost. Would protect against small drops though.

  16. Avataaar/Circle Created with python_avatars watashiwamillo says:

    With all the new retail traders, this is probably one of the most misunderstood but important topics to tell people about with options esp with AMC if we want this thing to go to at least $50k/ share. People, Do NOT 'sell to close' your call options contracts that are showing profits. PLEASE, call your broker about 2 days MINIMUM before they expire, and start the 'exercising' process. Ask them questions. Ask them to help you do the math! If you buy the stock of that contract INSTEAD – it can be the same or more PROFITABLE FOR YOU if the strike price is below the market price. AND it helps squeeze AMC to the highs we know it's worth!! Please tell you friends! Again, exercising (that means, buying the stock at your low strike price instead of the high market price) WILL be profitable to you! I am NOT a financial advisor! Don't listen to me! 🙂

  17. Avataaar/Circle Created with python_avatars Zero Point says:

    Just picked up the Wycliffe methodology, the intelligent investor, and the options playbook. I’ll have all 3 read in less than a month.

  18. Avataaar/Circle Created with python_avatars Bmore Investor says:

    Hey Trey,it is said nscc -002 is guaranteed to be passed on June,21. This is a ruling that force’s Short Hedge Funds to report their short positions on a new sec form. Failure of filing will let the system auto liquidate those positions.

  19. Avataaar/Circle Created with python_avatars TRIBES UNITE says:

    Charlie vids channel & trading science channels you uneducated nooks thats getting into stocks please check them out notice the detail of info you'll notice the differences in content and who really wants this squeeze or who just want ya superchat money that they keep and don't even buy shares with it . Open yell eyes. Just because you like someone doesn't mean that person isn't a conartist please broaden your perspectives

  20. Avataaar/Circle Created with python_avatars TRIBES UNITE says:

    Man this guy is leading a mindless group of followers straight into a bearish trap with these options. Sound good in theory you might even get lucky here in there but overall you'll lose big time. How many times are tall going to witness big bank manipulate the stock if too many calls are going to be itm two weekends straight went from 64 at 2:45pm to 57 by 3:30pm ruining every person itm who was over $60 darn dummies. So look at how Friday ended . $411,000 itm calls. $422,000 otm calls



  21. Avataaar/Circle Created with python_avatars Duffduck says:

    Former SEC chairmen David Router said this back in 2008: Highly leveraged hedge funds that borrow large sums and engage in complex transactions using exotic derivative instruments may severely disrupt the financial markets if they are unable to meet counter-party obligations or must sell assets to repay investors. Like Ken selling off his properties is a sign.

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