The 7 Sacred Indicators

The Indicators Nobody Taught You

Here's an uncomfortable truth: 90% of option traders are watching the wrong things.

They stare at RSI. They draw trendlines. They wait for "confirmation." Meanwhile, the smart money is reading a completely different dashboard — one built specifically for the options game.

Stock traders read price. Option traders read probability.

And the indicators that reveal probability? They're not on any YouTuber's "Top 5 Indicators" list. They're buried in institutional terminals, whispered in trading floors, and understood by the 1% who actually make money selling premium to the masses.

"Give me VIX, skew, and the gamma exposure map. You can keep your MACD and Bollinger Bands. I'll take the real edge."

— Options Desk Trader, Goldman Sachs

Today, we break the code. These are the 7 sacred indicators that elite option traders actually watch — the ones that give you x-ray vision into market psychology, institutional positioning, and probability itself.

By the end of this article, you'll look at your trading screen completely differently.

VIX & VIX Term Structure: The Market's Heartbeat

If you only watch one indicator for the rest of your trading career, make it the VIX.

The VIX — the "Fear Index" — measures the implied volatility of S&P 500 options. But here's what most traders get wrong: it's not just about the number. It's about what the number is doing relative to where it's been.

But here's the pro-level insight: VIX Term Structure is even more important than VIX itself.

The VIX term structure shows the relationship between near-term and long-term volatility expectations. In normal markets, long-term VIX futures trade higher than short-term (called contango). This is normal — more time = more uncertainty.

But when markets panic, the term structure inverts. Short-term VIX trades HIGHER than long-term (called backwardation). This is the market screaming: "The danger is NOW, not later!"

"I've never seen a major bottom without VIX term structure inversion. And I've never seen a lasting top without extreme contango and low VIX. The term structure tells the whole story."

— Christopher Cole, Artemis Capital

IV Rank & IV Percentile: The Premium Price Tag

VIX tells you about the overall market. But what about the specific stock or ETF you're trading?

That's where IV Rank and IV Percentile become your best friends.

Here's the problem: a stock with 40% implied volatility might be cheap... or expensive. Tesla at 40% IV? That's actually low for Tesla. Coca-Cola at 40% IV? That's panic-level expensive.

Context is everything. IV Rank and IV Percentile give you that context.

IV Rank tells you where current IV sits relative to the stock's IV range over the past year.

Formula: (Current IV - 52-week IV Low) / (52-week IV High - 52-week IV Low) × 100

IV Percentile tells you what percentage of days in the past year had LOWER IV than today.

"I don't care what IV is. I care what IV Rank is. A 60% IV in a stock that's been at 80% all year is actually LOW volatility. Context destroys assumptions."

— Tom Sosnoff, tastytrade

The Golden Rule: High IV Rank = Sell premium. Low IV Rank = Buy premium (or wait). This single concept separates profitable option traders from premium donors.

Put/Call Ratio: The Crowd's Confession

The Put/Call Ratio (PCR) is beautiful in its simplicity: how many puts are trading vs. how many calls?

When the ratio is high (lots of puts), the crowd is bearish. When it's low (lots of calls), the crowd is bullish. Simple, right?

Here's the twist: the crowd is usually wrong at extremes.

But watch out for the trap: There are multiple Put/Call Ratios.

Pro Tip: Track the 5-day moving average of equity PCR. Single-day spikes can be noise. Multi-day extremes are signals.

"When the put/call ratio hits extremes, I start doing the opposite of what the crowd is doing. They've been wrong at every major turn for decades."

— Jason Goepfert, SentimenTrader

Open Interest & OI Changes: Following The Big Money

Volume tells you activity. Open Interest tells you commitment.

Open Interest (OI) is the total number of outstanding option contracts that haven't been closed or exercised. It's the money that's still in the game.

When OI increases, new positions are being opened. When OI decreases, positions are being closed. The direction of price + OI change tells a story.

The Hidden Signal: Look for unusual OI buildup at specific strikes. When you see 50,000 contracts suddenly appear at the $100 call strike, someone with deep pockets just made a big bet.

"Retail looks at volume. Professionals look at open interest changes. The difference between activity and conviction is the difference between noise and signal."

— Options Market Maker

Max Pain Theory: The Controversial Price Magnet

Max Pain is the most controversial indicator in options trading. Some swear by it. Others call it conspiracy theory. The truth? It works until it doesn't — but knowing when it works is edge.

Max Pain is the strike price where option buyers would lose the MOST money (and option sellers would profit the most) at expiration.

The theory: Market makers and big institutions have sold most of the options. They have an incentive to pin the stock near Max Pain at expiration to minimize their payouts.

"Is Max Pain manipulation? Call it what you want. All I know is that on low-news OpEx weeks, stocks pin near Max Pain with shocking regularity. Trade accordingly."

— Options Floor Trader, CBOE

Delta Flow & GEX: The Dealer Hedging Game

This is where options trading gets really interesting. Dealer hedging flows can move the entire market.

When you buy a call option, who sells it to you? A market maker. But they don't want directional risk — they want to collect the spread. So what do they do?

They hedge.

If they're short your call, they buy stock to hedge. As your call moves into the money, they buy MORE stock (to stay delta neutral). If millions of traders are buying calls, market makers are buying billions in stock to hedge.

This is called Gamma Exposure (GEX) — and it's the most powerful hidden force in modern markets.

Positive GEX vs Negative GEX:

"Gamma exposure is the most underappreciated force in markets. When GEX is deeply negative, don't be surprised if moves are 2-3x what 'should' happen. Dealers become accelerators, not stabilizers."

— Brent Kochuba, SpotGamma

Skew Index: The Tail Risk Early Warning System

The Skew Index is the indicator that most retail traders have never even heard of. But hedge funds watch it religiously.

Skew measures the difference in implied volatility between out-of-the-money puts and out-of-the-money calls. In simple terms: how much more are people paying for crash insurance vs. lottery tickets?

High skew = People are aggressively buying put protection. They're afraid of a tail risk event — a black swan, a crash, something catastrophic.

The Divergence Signal: The most powerful signal is when VIX is low but skew is rising. This means:

• Near-term implied volatility is low (market looks calm)
• But tail risk insurance is getting expensive (smart money is scared)
• Historically, this precedes major dislocations

"Skew is the market's whispered confession of what it's really afraid of. VIX is the press release. Skew is what they say when they think no one's listening."

— Volatility Strategist, Bridgewater

The Dashboard of Champions

You've just learned the 7 indicators that elite option traders watch. Not RSI. Not MACD. Not moving averages.

These are the signals that reveal probability, positioning, and fear.

But here's the most important lesson: No single indicator is magic. They work in combination. VIX confirms what IV Rank suggests. GEX explains why Max Pain failed. Skew warns when PCR is lying.

Build this dashboard. Watch it daily. Over time, you'll start to "feel" the market differently. You'll see what the crowd misses. You'll understand why things are moving before the headlines explain it.

That's not magic. That's just reading the right data.

"The amateur looks at price. The professional looks at probability. The elite looks at the machine beneath the machine — the flows, the positioning, the mechanics. That's where the edge lives."

— Anonymous Hedge Fund PM