Reading StratosHedge Levels

The last lesson showed how dealer hedging can lean against a move or chase it. StratosHedge turns that into a few levels on your chart. Most come from the model’s estimate of gamma exposure at every strike near price; the Magnet uses the data provider’s volume-based estimate instead. The model uses the nearest expiration (for SPY on most days, options that expire the same day) and about 30 strikes on each side of price. These aren’t lines drawn through old highs and lows.

• Ceiling: the strike with the largest positive net GEX. The model expects hedging there to lean against rallies, so price often slows or stalls nearby. Pros call it the call wall.
• Floor: the strike with the most negative net GEX. Traders often watch it as support, though it’s less dependable on volatile days. Pros call it the put wall.
• Flip Line: the price nearest the current price where net GEX turns from negative at the strikes below to positive at the strikes above. On the nearest expiry the model holds that crossing between readings until it disappears (the strikes on both sides turn the same sign) or a clearly nearer one appears, so the line doesn’t hop on small moves. Above it the backdrop tends to be calmer; below it, jumpier. It’s a proxy, and sometimes there’s no crossing near price to find. Pros call it the gamma flip.
• Magnet: the strike with the most gamma, based on a volume-based estimate from the data provider. Price often drifts toward it, especially into expiration, though that’s a tendency, not a rule. Pros usually just call it the largest-gamma strike.

Strength Zones: areas, not lines

Each key level is drawn as a translucent band called a Strength Zone, because price rarely respects a single penny. The price range a zone covers comes from how concentrated gamma is around its strike. If neighboring strikes carry a lot of the same kind of gamma, the zone spans them and gets taller. Across the day, the band works like a ribbon: its thickness at each moment shows the zone’s strength at that time compared with the other zones, all on one scale. Don’t mix up the two: the zone’s price range comes from concentration around the strike, while the ribbon’s thickness, read from left to right through the day, tracks strength. A ribbon that thickens has gained ground on the other zones; one that thins has lost ground. To see how the zone’s own estimated gamma changed, read its Build-up, such as “▲312% since open”: it shows the percentage change in strength since the open, or since the first reading, and always says which.

What the levels are not

• Not forecasts. They describe where estimated positioning sits now. Price can and does trade through them.
• Not exact. A zone is an area. Price often reacts a little before the strike or pushes a little past it.
• Not fixed. Open interest settles once a day, but gamma reshapes as price moves and time passes. Levels can shift, and two can trade places.
• Not observed dealer positions. They rest on the sign assumption from the last lesson, so they carry model risk.

Not every line comes from options. Session levels such as the Prev High and Prev Low mark the previous trading day’s regular-session range. When the chart includes extended hours, the Pre-Mkt High and Pre-Mkt Low mark today’s pre-market range. Many traders watch them simply because so many others do. Each dark pool level marks a price where large off-exchange trades printed, such as “DP $1.9B”. Those reports can arrive late and show activity, not intent: a print doesn’t say whether a buyer or a seller started the trade, or whether it was part of a hedge. The chart keeps only a few of the closest so they don’t crowd the view. You may also see Ceiling 2 and Floor 2, the secondary levels that traders often look to if a main level gives way.