About Gamma Optimizer

Gamma Optimizer provides analysis of options trading opportunities in the S&P 500, metals & stocks, hosted by Leo Valencia, featuring his proprietary Gamma Optimizer tool for identifying the optimal strike & expiration in an options chain.

About Leo Valencia

Leo Valencia

"Leov," as he is known in the Trading Room, hosts the Gamma Optimizer service at EWT, where he provides options education and trade set-ups, as well as access to his proprietary Gamma Optimizer tool. The tool helps traders pick the option strike and expiration that maximize returns for a particular move in the underlying.

Leov has also developed what he calls the Deep Learning Algorithm, which, trained with historical SPX data, seeks to predict 1% upside moves in the SPX within a 5-session period. This algorithm is among the tools Leov provides in guiding members of Gamma Optimizer with options trading strategies and set-ups for minimizing risk and maximizing returns.

With a PhD in physics from Stanford University, Leov is an electrical engineer with more than 20 years of experience in research and development projects. He was a member of the technical staff at Bell Labs Lucent Technologies in the RF and Analog Simulation department, and also a senior member of Consulting Staff at Cadence Design systems for more than 15 years working on analog and digital simulation software projects.

Leo also has developed an options education video series exclusive to members of his Gamma Optimizer service, plus a premium set of online Options Courses for all levels of options trading.

Education Articles

The Ultimate Source of Truth Tue Apr 14th 2020

We are seeing very encouraging signs of an end to this crash environment.

Convolutional nets Live Video Mon Nov 11th 2019

Folks, I plan to do a live video for the convolutional nets at 3:15 PM today EST (UTC-5), it will be recorded and that will be the official tutorial going forward. Here is the YouTube link for it: https://www.youtube.

Gamma Optimizer Glossary Thu Mar 1st 2018

When joining the service new users can feel overwhelmed by the particular lingo that is spoken in all of our posts. Though the terms might sound strange or too advanced most of the time the concepts are very simple to understand.

NDLA Performance II Tue Feb 27th 2018

Now for the month of February we still have several more sessions to go even though the month ends tomorrow we need to wait more than 1 week to finish evaluating how did it go for it (so we can see if the predictions this week work next week or not).

A Tale of Two Volatilities Tue Feb 20th 2018

Because I know it can be confusing it is good from time to time to explain the differences between realized volatility and implied volatility.

New VIX Levels Tue Feb 13th 2018

After a healthy correction of 10% from the top the question in everyone’s mind is the following: At what level will VIX reset ? In other words, after years of low VIX values what would be the new normal level? 12 ? 15? 20 ? Of course it is hard to come up w

Liquidity is not Volume Wed Feb 7th 2018

 For the past several sessions I have been harping consistently about liquidity in the markets.

Reading VIX and VXST Mon Feb 5th 2018

By now you folks must know that I post a detailed view of the term structure of SPX options during the day, also you can get the a realtime curve by using the GammaCentral tool.

ES futures and SPX Mon Feb 5th 2018

Those of you with good eyes have noticed that ES futures trade sometimes at a discount to SPX and other times they seem to trade at a premium.

Long Gamma/Short gamma hedging effects. Mon Feb 5th 2018

I can't find any material about this subject even though I'm sure I have posted about this before :) the gist of the long gamma/short gamma threshold that I publish is this: 1. Below the threshold, SPX option dealers are short gamma in the aggregate.

The non-scientific 1997 Hypothesis Fri Feb 2nd 2018

For those of you curious about the 1997 thing, back in Jan30 I posted this: https://www.elliottwavetrader.

NDLA analysis Thu Feb 1st 2018

Ubah has done a very interesting analysis for the NDLA that he shared on this thread: https://www.elliottwavetrader.net/members/atchat/?threadId=4548681 in case some of you are interested on looking at the numbers.

NDLA performance since 2017 Wed Jan 31st 2018

This has been requested so I'm putting it here for those of you that want to play with the performance of the new DLA algo with data since 2017 until Jan 24 2018. Here is the link for the .csv file: https://storage.googleapis.

Why is VIX so high right now Tue Jan 23rd 2018

During the early days of 2018 we have seen a consistent and huge move upwards in price in the SPX index, it has been a relentless move that is pushing the index to all time highs on a daily basis for almost all of the sessions in January so far.

Ambiguity Thu Jan 18th 2018

I know some folks here are interesting on coding their own Ambiguity and Probability of Negative returns heuristics (which is an step towards coding their own DLA's :).

Gaussian Weights Thu Jan 18th 2018

This post is for Pegasus, he has requested information about how to compute weights based on assumptions of a normally distributed factor.

Web apps links Wed Jan 17th 2018

Remember folks you can access some webapps that can be useful to you. Positions app: https://gamma-trader.shinyapps.io/positions/ Momentum center: https://gamma-trader.shinyapps.io/center/ Gamma Central: https://gamma-trader.shinyapps.

Binary Risk Reversal Wed Jan 17th 2018

Implied volatility in SPX is finally coming down a lot and option prices are starting to become decent again. However the next time we are in a similar situation of high IV and expensive options and we want to play upside we can use a binary risk reversal.

The false myth of Income Strategies Mon Jan 15th 2018

Making use of the holiday this is a good time to re-post my thoughts about option "strategies" in particular those that seek to generate "income" in a regular basic, like weekly time frames.

Webinar recording Fri Jan 12th 2018

Folks Tom has kindly provided me with the link to my latest Gamma webinar (the one on Wednesday) so for those of you that were not able to attend here is the link: https://www.elliottwavetrader.net/videos/Optimizing-Your-Options-Trades-201805104816.

The True Edge of the DLA Fri Jan 12th 2018

With the close today the DLA is batting 3 trade jackpots in a row (max gain trades) with gain per trade north of 700%.

Positions app Fri Jan 12th 2018

For those of you new to the site we have a mini-Web app that tracks our current open positions: https://gamma-trader.shinyapps.io/positions/ Right now we only have two positions on.

DLA writtings Thu Jan 11th 2018

I don't have a single source of information for the DLA as it is just a deep neural net that I trained last year and I have been sharing periodically with you folks. So here is a collection of links to whatever I have written about it: https://www.

How to read Kurtosis Thu Jan 11th 2018

The control chart from the momentum center: https://gamma-trader.shinyapps.io/center/ displays a lot of useful statistical information. Things like Skew, Kurtosis, Mean, Standard Deviation, Realized Volatility.

Comments about the DLA and Probabilities Thu Jan 11th 2018

Given that the DLA seems to be the hot item "du jour" I'm getting many questions about the correct ways to interpret the probabilities displayed on the table.

Deep Learning Algo and Ambiguity Sun Dec 17th 2017

I got a very good question over the weekend about the Ambiguity indicator and the Deep Learning Algorithm (henceforth known as DLA) and I think it deserves to be answered in a wider space as it could be helpful to a lot of you folks to understand the differenc

Binary trades as pure Gamma trades Fri Dec 8th 2017

The power of long gamma expressed with binary options :) Remember that a tight vertical spread is basically a binary option, and also remember that a binary option is basically a pure gamma bet (not delta). So in this case our SPX uber-lotto: https://www.

Hedging Video Tue Nov 21st 2017

Here is the link for the Hedging video in YouTube: https://youtu.be/WKxNHaKGVbI, we can use this thread for Q&A

Hedging Class Tue Nov 21st 2017

I just completed the material for the Hedging Class and it certainly looks like it will be a very long video, so I wonder if you folks want me to just go ahead and record it or if you want a live class format where you can also asks questions (as usual the rec

Hedging Class Sat Nov 18th 2017

The hedging class is starting to look like a full College course ! I think I'm breaking my record here in terms of class duration, we'll see if YouTube allows me to upload it :)



Simple Practices for Maximizing Gains in Vertical Spreads - Jan 29, 2020
Leo covers why the Gamma Optimizer service makes extensive use of spreads instead of single options. He shares the most common mistakes that options traders make when trading spreads and how to eliminate them and maximize gains through a set of simple best practices.

Optimizing Your Options Trades - May 10, 2018

Options Courses

Leo has developed an options education video series in his Gamma Optimizer service. The 6-part series, ranging from an introduction to options to advanced options trading strategies, is currently only available to GO members, and archived in the service's video section. The series covers:

1) Introduction to Options: Basic concepts and tips.

2) Options Pricing: Pricing options in a risk-neutral world, plus Binomial model introduction.

3) Talking Greek: Advanced options pricing, Black Scholes Merton Model, volatility and greeks.

4) The Power of Gamma: Time decay, Gamma and Vega in detail.

Class 5 and 6 to follow.

Leo has also developed a premium set of online courses for all levels of options trading. Whether you're just getting started in the options world or wish to master sophisticated strategies, these courses will make a savvy and skilled options trader. Learn more and get discount code to save more than 50%.

Glossary A-Z

When joining the service new users can feel overwhelmed by the particular lingo that is spoken in all of our posts. Though the terms might sound strange or too advanced, most of the time the concepts are very simple to understand. In order to help everyone new to the service, here is a list of very common terms used in the room and also links to YouTube videos and site posts labeled "Education," to where I explain them at length.

Ambiguity: I post a chart about a statistical quantity called Ambiguity, which is a close cousin of VIX (it was created by one of the co-inventors of VIX). It measures the Knightian uncertainty in the market. The concept is pretty advanced, but the way I use the chart is simple: We look for low ambiguity to start a leg up, and for very high ambiguity when expecting downside action.

Binary Options: In the room I talk frequently about binary options, in particular the 1% upside binary call. A binary option always pays 100 if it finishes in the money, or 0 otherwise. Because of this it is a very simple way to play certain scenarios because it allows to compute in advance both expected profit and losses. For a more detailed discussion please check this video

Complex Trades - Butterflies, Calendars, Risk Reversals, Vertical Spreads: These are a set of trades that can be done with options and are called in general Complex Trades. The reason is that the trade requires the simultaneous execution of multiple “legs” where we are buying and selling options with different strikes and or/expirations at the same time. See video for more information:

Convolutional Nets: These are neural networks trained with SPX historical data that seek to predict moves in a 5-trading session period. One of the networks, called Ultra-4, looks for 1% up-moves in the market. A second, called Zero-I, provides the most basic prediction (market up, or market down). The third, called Neg-I, predicts -0.5% market declines. Unlike Leo's original NDLA algorithm, Convolutional Nets can be used to play both positive and negative signals. See video.

DLA and NDLA: This is a deep learning algorithm trained with SPX historical data that seeks to predict 1% upside moves in SPX within a 5 trading session period. The DLA was the original implementation and in 2018 we replaced it with the “New” DLA or NDLA.

Gamma: This is probably one of the most frequent words you’ll see in the room, it will be accompanied by a qualifier most of the time: long gamma or short gamma. Gamma is a mathematical parameter that describes the amount of non-linearity of an option. For a more in-depth presentation on this please check my YouTube video

The Gamma Central tool provides a nice snapshot of the current realized and implied volatility status for any underlying. The tool provides functionality through tabs, and what follows is a brief description of what each tab does. For more in-depth information about the tool, please check the following YouTube video

Gamma Optimizer or GO: This is a reference to our Long Gamma Optimizer tool, which is a tool we use to compute the best options to play a particular thesis. For a tutorial of the tool please check this video.

GT / Gamma Threshold Level: The level at which most options dealers are neutral in the aggregate (i.e., they don't need to hedge). Above that level, dealers are long gamma, with their hedging activity tending to slow down big market moves, producing lower volatility. Conversely, when below the GT level dealers are short gamma and their hedging activity amplifies or accelerates moves, creating more market volatility.

Kurtosis: In the momentum chart we have the control chart that displays a value called Kurtosis. This is a basic statistical number that tells us a lot about the nature of the distribution of intraday log returns. When kurtosis is 3.0 the distribution is normal (also called Gaussian) and means that most of the action is perfectly random fluctuations of price.

Log Returns: In finance returns are usually measured as log returns. This is a simple concept and it is defined as: Log Return = log (close/ prev close) where log() is the natural logarithm function.

SPX Term Structure: This is a chart that I publish frequently in the room and represents the Implied Volatility of options across different expiration dates. It gives you an idea of how expensive options are based on how close to expire they are. The X axis of the chart is time in days, and the Y axis is implied volatility in percentage. For a more detailed explanation of this concept please check the Gamma Central tutorial.

Standard Deviation: This is a statistical term that is very important to options. It is defined as the square root of the variance (so if you know variance you know standard deviation). This is explained in more detail in the volatility videos (see "Volatility").

Variance: This is another statistical term, and it it corresponds to the classic variance of population distributions. It is a very important concept for options and it is explained in more detail in the Volatility videos (see Volatility).

VIX: Another term that you will see a lot in the room is VIX. This is an index created by the CBOE that measures the 30-day implied variance in the market using only SPX option prices. It is a very useful measure, and although it can be traded directly there are lots of products connected to it, like VIX futures, or volatility ETP’s like VXX and SVWY. For more information about VIX check the CBOE website and also this video.

Volatility: This is a very frequent word in the GO room and it is a key concept for option trading, in finance volatility is basically the standard deviation of log returns, scaled to an annual value and also printed as a percentage (10%, 20% etc). It comes in several flavors most notably Realized Volatility and Implied Volatility. See video here.

Volatility or Momentum Center: This is a helper application with multiple charts updating real time, most of them designed to track momentum in any underlying. See video.

VRP: Another term that appears very frequently is VRP or Variance Risk Premium. In its most basic form the VRP is an added premium between "implied volatility" and realized volatility. In general, implied volatility trades above realized volatility (it trades at a premium called the VRP). For more information please see video.