Weekly Alpha Review - Apr. 25, 2025
My Journal
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“The signal catches up to the SPX” - Machina Quanta
The S&P500 gained ~240 points on the index over the week. Woohoo!
Entropic Model
This past week I introduced live pricing into the entropic model so we could gain 15 mins of time advantage. After some data auditing over the weekend I found some datapoints were missing from the vendor so I’ve gone back to fix those manually. Below is the resulting model output. Although some of the values are a bit different on some days, the trend and narrative is unchanged. I am considering another data vendor for live data, however, so I am not automating this process for now. I will keep you apprised of updates. Data integrity is paramount to me, it’s my reputation. Machine learning models are only as good as the data they are fed.
I want to highlight three recent anomalies for you from the chats this week (the last one we didn’t discuss as I did not publish that data yet - was pending my audit).
Anomaly 1
Apr. 21 (pink circles): model was flat/up (depending on time of day) meanwhile the SP500 was falling. These divergences are what give us edge. I attempted a long on MES futures in the chat. More details on this trade at the end of this writeup.
Anomaly 2
Apr. 22-24 (orange circles): model was pointing up generally throughout the week. I did not bother to short SPX for this reason, the model was telling me not to. However, for a period of time it was pointing down on Apr. 24 so I decided to start a long-dated hedge position (20-30bps) in August puts.
Anomaly 3
Apr. 25 (red circles): This data was not available at the time for reason I mentioned above but there is still value in talking about it. We see another divergence at the end of Friday despite the index up and model showing weakness. I’m already hedged from Thursday end of day. It’s worth paying close attention to how the next few days play out for the model.
GEX
Anomaly 1
Have a look at how GEX closed last Friday (this is delayed well after close). GEX went DOWN while index went UP. Dealers reduced long exposure by selling down ES futures. Uh-oh.
Here’s where I have seen this oddity before below (Dec. 6, 2024). This has resulted in a sell the following day(s).
Review of Hedging Activity
Hedging has gone quite well. The signal below from the model was a good indication to press hedges. We saw the index fall some 250 points shortly after this anomaly.
Below is a summary of the hedging activity. Notice my timing wasn’t perfect but I pressed hedges when the signal strength increased. Nobody will be perfect with timing and that’s not the point. We just need to know when we have enough edge to short/hedge. No need to waste profit shorting/hedging if there isn’t a reason and some pullbacks aren’t worth hedging at all. I was lucky enough to capture about 300 handles of the down move on SPX, leaving 25% of the remaining hedge to expire worthless after profits of 100%, 125% and 40% on the puts. There appears to be a lot of ‘action’ in the picture below but in this environment I can’t really let things sit for weeks/months as the market will clean out those traders. We have 300-600 point swings each week now. You HAVE to take profit on hedges.
Review of Long Setup (MES futures)
Given the nature of futures (leverage) and many subscribers not being able (or desire) to trade high-risk short-term setups, I only alerted the below long MES futures in the main chat and not a separate thread for that reason. The trade failed initially as you see but I tried again. This is not a “I told you so” moment, I got LUCKY following the divergence between the model and SPX - that’s it, I’m not kidding myself. I’m still in 1/3 of the position after selling 2/3 as per below (176 pts and 338 pts higher).
Again, delayed information, however notice that GEX made a HIGHER low below on April 21 despite the SP500 making a new local low. Hmm. So market makers sold less ES futures despite the SP500 falling further - quite an anomaly. I did NOT have this information at the time of the trade but it made for some nice confirmation once the data was available.
Please help others by sharing this publication if you find this information useful. See you in the chat team!
Disclaimer
This Substack serves as a personal journal for my own reference and is not intended as financial or investment advice. The content is purely informational and reflects my personal observations, not recommendations.
I am not a registered financial advisor, and nothing here should be considered professional guidance. Investing, especially in securities and options, involves substantial risk, and past performance does not guarantee future results.
By reading this Substack, you acknowledge that all trading decisions are solely your responsibility, and I am not liable for any financial outcomes resulting from your actions.