Gamma Exposure (GEX) Analysis
Gamma Exposure (GEX) is one of the most powerful tools for understanding market dynamics. It measures the aggregate gamma positioning of options market makers and predicts their hedging behavior.
What is Gamma Exposure?
GEX represents the dollar amount of stock market makers must buy or sell to remain delta-neutral when the underlying moves 1%.
Formula:
GEX = Spot Price × Gamma × Open Interest × Contract Multiplier × Spot Price / 100
Why GEX Matters
Market makers’ hedging flows can:
- Amplify or dampen market moves
- Create support and resistance levels
- Predict intraday volatility
- Signal potential reversals
GEX Regimes
Positive GEX (Long Gamma)
Market Maker Behavior: Sell rallies, buy dips
Market Impact:
- Suppressed volatility
- Mean reversion
- Stable, grinding moves
- “Pinning” behavior
Trading Approach:
- Fade extreme moves
- Sell volatility
- Range-bound strategies
Negative GEX (Short Gamma)
Market Maker Behavior: Buy rallies, sell dips
Market Impact:
- Amplified volatility
- Trending moves
- Gap risks
- Cascading effects
Trading Approach:
- Momentum strategies
- Buy volatility
- Breakout trades
Zero Gamma Level
The price where GEX flips from positive to negative:
- Key inflection point
- Often acts as magnet
- Volatility trigger level
Reading GEX Charts in Optionomics
GEX Profile
Shows gamma exposure at each strike:
- Peaks: Major hedging levels
- Valleys: Low hedging activity
- Crossover: Zero gamma point
Time-Based GEX
Tracks GEX changes throughout the day:
- Opening imbalances
- Intraday flows
- Expiration effects
- Roll periods
Key GEX Levels
Call Wall
Highest positive GEX strike above spot:
- Acts as resistance
- Dealers sell into rallies here
- Often caps upside moves
Put Wall
Highest negative GEX strike below spot:
- Acts as support
- Dealers buy into dips here
- Often provides floor
Gamma Flip Point
Where cumulative GEX changes sign:
- Volatility regime change
- Critical decision point
- Often tested multiple times
GEX Trading Strategies
1. Fade the Call Wall
When price approaches call wall:
- Expect resistance
- Consider short-term shorts
- Buy puts or put spreads
2. Buy the Put Wall
When price approaches put wall:
- Expect support
- Consider long entries
- Sell puts for premium
3. Volatility Regime Trading
Positive GEX:
- Sell straddles/strangles
- Iron condors
- Short volatility
Negative GEX:
- Buy straddles/strangles
- Long volatility
- Directional options
GEX and Market Events
Options Expiration (OPEX)
- Large GEX expires
- Regime changes possible
- Increased volatility after
Earnings Season
- Individual stock GEX shifts
- Sector rotation effects
- Volatility expansion
Federal Reserve Events
- Index GEX positioning
- Volatility preparation
- Post-event unwind
Advanced GEX Concepts
Charm Flow
How GEX changes over time:
- Weekend decay effects
- Acceleration into expiry
- Intraday patterns
Vanna Flow
GEX changes from volatility:
- IV expansion effects
- Volatility feedback loops
- Cross-Greek impacts
Speed Effects
Second-order gamma changes:
- Acceleration zones
- Stability pockets
- Flip dynamics
SPX/SPY GEX Analysis
Daily Levels
Monitor key levels each day:
- Zero gamma
- Call wall
- Put wall
- High GEX strikes
Volatility Expectations
GEX predicts realized volatility:
- High positive GEX = Low volatility
- Negative GEX = High volatility
- Near zero = Transitional
Using Optionomics GEX Tools
Real-Time GEX
- Live updates with trades
- Intraday evolution
- Strike-by-strike breakdown
Historical GEX
- Study historical GEX patterns
- Pattern recognition
- Correlation analysis
GEX Alerts
Set alerts for:
- Zero gamma crosses
- Wall approaches
- Regime changes
- Extreme readings
Common GEX Patterns
1. Quarterly Pinning
End of quarter effects:
- Large GEX at round numbers
- Strong pinning behavior
- Volatility collapse
2. OPEX Unwind
Post-expiration dynamics:
- GEX reduction
- Volatility expansion
- Directional freedom
3. Squeeze Dynamics
Negative GEX cascades:
- Self-reinforcing moves
- Stop-loss triggers
- Dealer hedging amplification
GEX Limitations
Not Predictive
GEX shows current state, not future:
- Positioning can change quickly
- New flows alter landscape
- Events override mechanics
Assumptions
Model assumes:
- Dealers delta-hedge
- Standard hedging ratios
- No directional bias
Data Quality
Requires accurate:
- Open interest data
- Greeks calculations
- Real-time updates
Combining GEX with Other Metrics
GEX + Options Flow
- Confirm directional bias
- Identify new positioning
- Spot regime changes
GEX + Technical Analysis
- Enhanced support/resistance
- Breakout probability
- Target identification
GEX + Volatility
- IV vs. GEX divergence
- Volatility regime alignment
- Event preparation
Practical Examples
Example 1: SPY at Call Wall
- SPY: $450
- Call Wall: $452
- GEX: +$2B
Analysis: Strong resistance expected Trade: Short $452/$454 call spread
Example 2: Negative GEX Breakdown
- QQQ: $380
- Zero Gamma: $385
- GEX: -$500M
Analysis: Volatility expansion likely Trade: Long straddle or momentum trade
GEX Cheat Sheet
| GEX Level | Market Behavior | Strategy |
|---|---|---|
| Very Positive (>$2B) | Pinned, low vol | Sell premium |
| Positive ($0-2B) | Stable, grinding | Range trades |
| Near Zero | Transitional | Wait for direction |
| Negative ($0 to -1B) | Volatile, trending | Momentum |
| Very Negative (<-1B) | Extreme moves | Protection/direction |
Key Takeaways
- GEX drives market behavior through dealer hedging
- Positive GEX suppresses volatility
- Negative GEX amplifies moves
- Walls act as magnets and barriers
- Combine with other indicators
Next Steps
Deepen your understanding:
Pro Tip: Use Optionomics’ real-time GEX levels each morning to plan your trading day. Know where the “speed bumps” and “accelerator zones” are before the market opens.
