macrocephalopod

Of course it's still possible that dealer selling exacerbates the drop, but that's much less obvious, and requires careful data analysis -- you certainly can't conclude anything by looking at the chart.

Main point here was that despite all the complicated options flow, dealer hedging, second order greeks fluff, this essentially comes down to stocks up => positive signal, stocks down => negative signal — like so many other indicators that just reflect recent market moves.

This is also roughly what happens when we see negative GEX after large moves. I mentioned it when we saw the -2 billion reading or whatever. It's pretty normal simply because of price sensitivity.

This is pretty much my point. Not that all the dealer hedging stuff doesn’t work at all. Just that it’s often presented in a way which massively overstates how significant it is (eg chart above, or plots of dealer gamma exposure vs return). These charts show a big effect but

98%+ of the effect you see in those charts is straightforward contemporaneous mechanical relationships in the underlier => options direction. Measuring the strength of the predictive options => underlier relationship (what you actually care about) is hardly ever discussed.

I would split the problem in 2 parts - 1.estimating dealer(delta hedged) positioning and 2. predicting performance of options given the positioning. 2. is pretty pretty good grounding, ad can even be modelled (Loepr). 1. is super hard

1. is a fool's errand. Statistics works a lot better here in my biased opinion.

What makes you say that? I haven’t implemented the method in the recent-ish @HauVolatility report but it seems a priori plausible, and the only good test of whether the effect everyone says exists really does exist.