Weekly Alpha Review - May 16, 2025

My Journal

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“The signal catches up to the SPX” - Machina Quanta

Note to readers: THANK YOU! I created this Substack and the analytic platform less than three months ago due to reader requests. So, most important is to thank you if you have subscribed at any point as it really is a dream to be able to write and build for you. I’m a small fish but I’m very grateful for your support.

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Review of Hedging Activity

Below are the new round of hedges added this week for about 90 bps in total.

The first round of hedges in early May were not effective (puts went to 0) as the SP500 continued +100 handles higher before selling and then news of China deal sent them all to heaven. So, hedging at ~5600-5700 failed and lost about 75 bps in puts. I also tried an initial hedge with puts on Monday but quickly stopped it out as signal had reversed - “no need to push things until stronger signal develops”.

If you were hedging at 5600-5700 because you had indication to do so, why would you not be hedging at 5900-6000 when sentiment is much more euphoric? For some reason, mentally it feels harder to short the higher we go but hedging should be systematic - you see warnings, you hedge.

Review of Long Setup (MES futures)

Sold the last 1/3 of the MES futures on 05/15 for 750 points (trimming 2/3 earlier) given I began hedging more aggressively. Got lucky on this one.

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Let’s do our review of market metrics. Ratings are: 1-very bearish, 3-neutral, 5-very bullish.

Entropic Model

Here’s my accounting on the entropic model so I can allocate the warnings to selling in the SP500. Two warnings flashed this week and SP500 still have not reacted, so I hedged again. The impact is bearish - rating 2/5.

GEX

As a reader, you already know the anomalies I’m looking for. Dealers were reducing their net long positions for two days while the index kept rising. The story is writing itself. Note, we are still very much in BTD mode though given the level of GEX so pullbacks may get bought up. Impact from this is bearish - rating 2/5.

Source: https://squeezemetrics.com/monitor/dix

Seasonality