On the NPD/VGR chart, the following are displayed:
The $SPX chart is grey, so you can see how the signals have lined up previously.
NPD is the purple line.
VGR is the blue line.
NPD stands for Net Put Delta, which measures the amount of $SPX puts bought or sold daily. When the NPD number is close to 0, this indicates minimal $SPX put buying or a lack of hedging. Conversely, when the NPD number is far below 0, this shows that players are buying a lot of $SPX puts as protection.
In some rare instances, NPD will turn positive, indicating players are selling $SPX puts.
If NPD is close to 0, this indicates large funds and institutions believe prices are going higher and thus are not interested in hedging. A dip in the overall market could lead to further selling pressure since there is a lack of general hedging.
Many traders in the room start considering a long bias when NPD is below -5 (neutral) and a short bias when NPD is above -5.
VGR stands for Vanna Gamma Ratio, which measures the likelihood of volatility in the market. We also want VGR to be as far from 0 as possible for a bullish reading with NPD.
When both NPD and VGR line up similarly near 0, we can expect the potential for added market volatility and selling pressure. Conversely, when they both line up below -5, we can expect a floor in the market that prevents further downside.
Questions or suggestions?
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