Net Premium Heatmap

A daily net premium heatmap table with strikes and expiry dates can be a valuable tool for retail traders to analyze and make intraday trading decisions.

Here's how to effectively use it:

1. Understand the Data in the Heatmap

   • Net Premium: Shows the net flow of money into calls vs. puts. A positive value indicates bullish sentiment, while a negative value suggests bearish sentiment.
   • Strikes: Indicates the price levels where significant options activity is concentrated.
   • Expiry Dates: Helps identify the time frame of market participants' bets (e.g., same-day, weekly, monthly).



2. Spot Key Levels

   • Identify strikes with the highest premiums. These are levels where institutional and retail traders have placed significant bets, often acting as potential support or resistance zones.
   • For intraday trading, focus on strikes that are close to the current price or show significant changes in net premiums.



3. Gauge Market Sentiment

   • Compare the net premium for calls vs. puts:
     • More call premiums: Indicates bullish sentiment.
     • More put premiums: Indicates bearish sentiment.
   • Use this to align your trades with the prevailing market sentiment.



4. Time the Expiry

   • Pay attention to expiry dates for options contracts:
     • Same-day expiration (0DTE): High net premiums can indicate rapid intraday moves or volatility.
     • Weekly expiration: May show trends for the remainder of the week.
     • Monthly expiration (OPEX): Significant activity around these expirations often leads to larger market moves.



5. Identify Potential Reversals

   • Shift in Net Premiums: Sudden changes in the balance of call and put premiums can signal a potential reversal.
   • Use the heatmap to detect shifts at key strikes and react to changes in sentiment.



6. Confirm with Price Action

   • Combine the heatmap data with price action or technical indicators:
     • If a strike with high call premiums acts as resistance but breaks, it may indicate a continuation of the uptrend.
     • Conversely, if a strike with high put premiums holds as support, the downtrend may continue.



7. Monitor Gamma Exposure

   • High activity near certain strikes can lead to gamma squeezes, where market makers adjust hedges, amplifying price moves. Focus on these strikes for sharp intraday opportunities.

Example Use Case

Suppose the heatmap shows:

• High call premiums at the $510 strike with same-day expiration.
• Increasing put premiums at the $500 strike.

Action:

Watch the $510 level for a breakout. If the price breaks above and holds, you may consider a long trade, expecting continued bullish momentum. If it fails and the price moves towards $500, consider a short trade anticipating bearish sentiment.

Using a daily net premium heatmap table effectively requires combining its insights with other trading tools like volume, trend analysis, and risk management strategies.