Introduction to Dealer Gamma Exposure (GEX)

Options market makers are generally delta-neutral liquidity providers. When retail traders and institutional desks buy or sell option contracts, market makers take the opposing side of the trade and hedge their risk in the underlying stock or index futures.

Positive Gamma vs. Negative Gamma Regimes

Depending on whether dealers are net long or short option gamma, their rehedging behavior drastically alters market volatility:

• Positive Gamma Regime (Dampened Volatility): When dealers are long gamma, they must buy stock as price falls and sell stock as price rallies. This creates a mean-reverting, low-volatility environment where prices tend to pin near major strike clusters.
• Negative Gamma Regime (Expanded Volatility): When dealers are short gamma, they are forced to sell into market declines and buy into market rallies. This accelerates directional momentum and creates rapid intraday trend moves.

How to Use GEX in Your Daily Trading

By tracking net dealer gamma across SPX, NVDA, and QQQ, traders can identify key pivot levels where market makers shift from volatility dampeners to volatility accelerations.