3D Vol Plane - Dealer Positioning as it Relates to Current Fixed Price Volatility with Volland

Episode Overview

• This episode introduces the new 3D Volatility Plane widget by Volland, designed specifically for intermediate to advanced options traders to visualize complex market data.
• The tutorial explains how to navigate the 3D interface, interpret the three axes (Strike, Days Until Expiration, and Implied Volatility), and customize the view using various filters like Greeks and timeframes.
• Viewers will learn how to perform sophisticated market analysis using this tool, including identifying earnings plays through skew analysis, spotting dealer hedging activity via relative Greek changes, and detecting over- or under-priced skew.

Key Concepts

• The 3D Visualization Model: Instead of flat charts or interpolation, this tool uses single points to represent actual existing options. The three dimensions allow traders to see the relationship between an option's strike price (X-axis), time until expiration (Y-axis), and implied volatility (Z-axis) simultaneously.
• Visualizing Greeks via Heatmaps: The tool layers a fourth dimension of data onto the 3D chart using color. Traders can select a specific "Greek" (like Delta, Gamma, or Vanna), and the dots on the chart change color to represent dealer exposure levels. This allows for instant visual recognition of where risk and hedging pressure are concentrated.
• Concurrent Skew Analysis: A primary use case for this tool is comparing volatility skew across different expiration dates. By visualizing multiple expiration curves at once, traders can identify "kinks" or anomalies, such as those caused by earnings announcements, where near-term volatility spikes significantly compared to later dates.
• Relative vs. Absolute Exposure: The tool distinguishes between absolute exposure (total dealer positioning at a strike) and relative daily changes. Understanding relative changes is crucial for spotting immediate hedging pressure—for example, a sharp decline in Delta on a specific expiration often indicates dealers are short calls/puts and must buy the underlying asset to remain neutral.

Quotes

• At 0:29 - "Instead of interpolating implied volatility for strikes that don't exist, we decided to use single points to display the fixed price volatility of each option." - This explains the fundamental design choice of the widget, prioritizing precision and actual market data over theoretical smooth curves.
• At 3:48 - "A large decline in Delta would imply that dealers would have had to buy a lot of Deltas in order to remain risk neutral to direction." - This connects the visual data on the chart (a drop in the graph) to the actual mechanical behavior of market makers, explaining the "why" behind price movements.
• At 4:53 - "You could see if higher Vanna exposure below price should result in lower skew in the near term because dealers would be short options below price and that would be wanting to incentivize option purchases." - This quote illustrates a high-level analysis technique, using second-order Greeks (Vanna) to predict or validate the shape of the volatility skew.

Takeaways

• Customize the widget for specific trade theses: Configure the 3D plane to display specific Greeks (like Vanna or Charm) and timeframes to validate complex hypothesis, rather than just looking at standard price action.
• Use relative changes to track dealer hedging: Switch the "Daily Change" setting to "Relative" to isolate exactly where dealers are feeling pressure today, which can act as a leading indicator for short-term price flows in the underlying stock.
• Identify earnings opportunities through visual skew: Look for dramatic differences in the steepness and height of volatility curves between consecutive expiration dates to pinpoint exactly when the market expects an event (like earnings) to occur and how much risk is priced in.