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Trap Indicator is a tool that identifies overconfident call and put writers getting trapped.
• Call Writer’s Trap - Bullish Trade.
• Put Writer’s Trap - Bearish Trade.
Call writers are traders who have sold call options of varied strikes, expecting that the underlying will not go above those stipulated strike prices. When the underlying price rises and crosses the strike price of a very high open interest call option, these option writers are possibly said to be trapped and most of them would start unwinding their short positions and possibly shift their open positions to other strike prices, i.e. rolling their positions to higher strikes or OTM strikes. So, in that particular call option which results in unwinding, causes the call option premium to rise up rapidly and is considered a bullish signal for the underlying.
This phenomenon needs to be tracked, which is very cumbersome, time consuming when done across the entire gamut of stocks or indices.
Trap Indicator is a proprietary algorithm of Quantsapp which searches for securities or indices where the call writers or put writers are getting trapped, with prices of securities turning bullish or bearish respectively, hence hurting the writers. These writers would go ahead and unwind their positions which could result in a further momentum-laden move in that respective security/index.
At Quantsapp, it has been always the team’s endeavour to bring to investors and traders, tools and analytics in a simplified manner, which help them enhance their trading approaches and hence assist in their decision making.
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