Analyze dealer gamma exposure and predict volatility based on market maker positioning
Gamma Exposure (GEX) measures the expected delta hedging activity by market makers. It helps predict how dealer hedging flows will impact price movements and volatility.
The GEX flip strike is where dealer gamma changes from positive to negative. This level often acts as a key support/resistance and can indicate where volatility characteristics change.
GEX helps traders understand how market maker hedging will affect price action. Dealers typically maintain delta-neutral positions, so they must hedge their gamma exposure by buying or selling the underlying stock.
Positive GEX
Dealers are long gamma. They buy dips and sell rallies, suppressing volatility and creating mean-reverting price action. Market tends to be stable.
Negative GEX
Dealers are short gamma. They must sell into weakness and buy into strength, amplifying moves. Market tends to be volatile with trending behavior.