Gamma exposure (GEX), gamma flip and gamma squeezes
Gamma, in one paragraph
An option’s delta is how much its price moves per dollar move in the underlying. Gamma is how fast that delta changes. A market maker who has sold an option must hold a position in the stock equal to the option’s delta to be hedged; because gamma changes the delta as the stock moves, the hedge has to be adjusted constantly. Those adjustments are real buying and selling in the underlying, and across a large chain they are big.
Gamma exposure (GEX)
Gamma exposure aggregates that effect for a whole chain. The common definition is
GEX = Σ gamma × open interest × 100 × spotsummed over contracts, with calls counted positive and puts negative (the convention assumes dealers are long the calls customers sold and short the puts customers bought, which is a simplification). The sign tells you how hedging behaves:
- Positive (long) gamma: dealers sell into rallies and buy dips. Moves are damped; the stock tends to mean-revert intraday.
- Negative (short) gamma: dealers buy into rallies and sell dips. Moves are amplified.
The gamma flip or zero-gamma level is the price where aggregate gamma changes sign. Above it the market is usually in the damped regime, below it in the amplified one, which is why the level is watched as a line between calm and volatile trading. Call walls and put walls are the strikes with the largest positive and negative gamma, often cited as resistance and support.
Gamma squeeze
A gamma squeeze is the amplified regime run to an extreme: heavy call buying forces dealers to buy stock to hedge, the stock rises, the calls’ deltas rise, dealers buy more, and so on. It ends when the buying stops or the calls are sold, at which point the hedges unwind just as fast. The GameStop episode in early 2021 is the usual example.
How this relates to the levels on this site
This site computes two related prices from the same summed-greeks idea: gamma max, the underlying price where the chain’s summed gamma is largest (the peak of the exposure curve, not its zero), and the gamma neutral price, where the summed gamma is zero, which is the same idea as the gamma flip. Both use every expiry and the implied volatility of each contract. Total GEX and per-strike walls are on the roadmap.