Basic Points

• The Call Wall is the strike with the largest net call gamma. 
• This is one of our most important key resistance levels. It holds a majority of the time.
• Call Walls are essential in our daily levels analysis.
• Their main function is that they define the upper bound of the wider probable range. 
• The direction that walls shift overnight is a strong directional signal: up equals bullish and down equals bearish. This is often what we are keeping the closest eye on while waiting for a bullish signal from the market. 

Intermediate: Analytic Use Case

In general, we would use a Call Wall for identifying resistance, and expect the price to slow down if rising into this level. Here is a sample of our research on Call Walls here, showing how the price will sometimes rise a bit past the Call Wall, but usually sink back underneath it the next day. 

• The Call Wall has held in 83% of daily trading sessions, meaning the intraday high did not exceed the Call Wall
• In 88% of sessions, the SPX closed below the Call Wall.

• Following a Call Wall breach, average forward returns are diminutive: -7bps for 1 day forward return, and 5bps for 5 day forward returns.

Use case: Consider a call spread above the call wall to capitalize on the resistance at this level, expecting the stock price to not rise above this level.

Advanced: Call Walls and Gamma

Call Walls tend to have a sticky gamma effect, which ultimately means it can be difficult for the price to break through them. From there, the price tends to reverse or stick in a tight range (a pin). But when Call Walls lift up, structurally this makes it easier for the market to climb up to that new resistance level. 

The mechanism which explains this sticky gamma effect is how dealers being long gamma (favorably accelerating directional exposure) will have the size of their position dynamically increase when they are significantly correct about direction. After a sharp move increases their size in a profitable way, such as shooting up, then they can sell some of the underlying security to get their directional exposure closer to neutral. Doing so would lock in profits for them. This is the explanation for why dealers will trade in the opposite direction of the underlying when positive gamma, a dynamic which mutes volatility and therefore creates a pin. 

Watch this video to understand how to trade with our call wall: