🐷Delta Impact(DEI)

Delta-adjusted Exposure(DEX), also called delta volume, more information Delta Exposure(DEX)

Delta Impact (DEI) is a metric used to gauge the significance of options trading and identify whether it requires further attention. It involves comparing the daily average stock volume over the past 30 days with the delta-adjusted exposure (DEX). Delta-adjusted exposure represents the stock volume equivalent derived from hedging an options trade. To calculate delta volume, the delta of an option at the time of the trade is used.

The Delta Impact is used to normalize the Delta Exposure, making it possible to compare the weights of Delta Exposures across different symbols.

For example, if there were 10 call options traded with a delta of 0.80, the delta-adjusted exposure would be 800 (10 * 0.80). To assess the relative impact, we compare this positive 800 delta-adjusted exposure to the stock volume, let's say 5 million. In this case, the option delta-adjusted exposure is deemed relatively small (800/5,000,000), suggesting that most traders are primarily involved in trading the underlying stock.

However, if the net option delta-adjusted exposure amounts to 3 million, the delta/stock volume percentage would be 60% (3M/5M = 60%). This indicates that the volume from options becomes more relevant to the overall sentiment in trading. A higher percentage suggests that market makers may need to buy or sell more shares to hedge the impact, particularly if it is an opening order.

Take the QQQ on the date of March 30th, 2023 as an example, the value of Delta Impact(DEI) is 76.8%, which is equal to the quotient of DEX(20.54K) / Average Daily Stock Volume(26.75K).

How to Use DEI to Capture Stock Uptrends

The DEI indicator can display recent abnormal movements in a stock's funding. For example, on 13 June, 2023, BP Prudhoe Bay Royalty Trust ($BPT) ranked first on the DEI leaderboard, showing significant positive funding inflow from 12 June to 13 June. On 13 June, there was a large sell order for PUT options, resulting in a DEI of 83.31%. On the 16th, the stock surged, closing up over 6%, and intraday rose by up to 11%.