- Large options trades: When a large trade takes place, it can have an immediate impact on the stock as dealers move to hedge this new risk. This is what we have referred to as the “delta hedge.”
- Cumulative Indicator: As the Cumulative/Aggregate hedging pressure grows throughout the day, a hedging imbalance can take place. When this imbalance gets too large, dealers may have to adjust their hedges using stock/futures. This is considered a “gamma hedge.”
- Sentiment: The cumulative HIRO indicator could be used to judge the sentiment of options traders. A large negative imbalance could be considered bearish, a large positive HIRO imbalance could be considered bullish.
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