Gamma Exposure (GEX)

Gamma exposure estimates the hedging pressure created by options as the underlying price moves. Dealers who have sold options to customers are typically short gamma. When price rises, short gamma forces them to buy more to stay hedged, and when price falls it forces them to sell more. That behaviour chases the move and can amplify it. Dealers who are long gamma do the opposite: they sell into strength and buy into weakness, which can dampen the move. GEX is an attempt to add this up from the listed chain and guess which side the dealers are on. The damping and amplifying stories are the useful part. They are a description of hedging, not a proof that a particular print is "the dealers." The guess about who is short the options is the fragile part, and different vendors guess differently.

If you use a published GEX number, read the vendor's sign convention and what they assume about customer flow. Then look at the shape by strike, not only the net. A market can be positive gamma in total and still have a pocket of negative gamma around the spot that matters for today's move. The practical regime read, under the standard story, is: positive gamma near spot favours mean reversion and smaller realised ranges. Negative gamma near spot favours extension, breakouts that keep going, and squeezes. Into expiry, gamma grows, so the same open interest matters more. After expiry, the hedge disappears and the pin, if there was one, is free to break. These are tendencies of hedging flows in index products with deep option markets. They are not a law for a stock with a scattered chain.

Use the gamma regime as a context switch between mean reversion and momentum. In a clearly positive gamma environment, fades toward the large open-interest strikes have a mechanism, not just a story. In a clearly negative gamma environment, respect breakouts and do not fade the first extension. Require "clearly." A number flickering around zero is not a regime. Pair it with the level and with realised volatility. If the estimate and the tape disagree, a positive GEX while the market is trending hard on news, believe the tape. Hedging flows are one participant. They are not the only one, and on a news day they are not the largest.

Quoting a GEX figure without the sign convention, so that "positive" means opposite things in two notes. Also treating a dealer-hedging estimate as a map of institutional intent. And trading every zero-cross of a published GEX series as an event. The input open interest is lumpy and the assumption about who sold the options is crude. A cross can be a data artefact. Finally, applying an index GEX playbook to a single equity with wide markets and weekly open interest that is mostly one spread. The hedging impact is real when the book is large relative to the underlying's liquidity. Otherwise it is arithmetic on a quiet chain.

GEX is not observable. The position of dealers is inferred from open interest plus an assumption, sometimes adjusted with proprietary trade-signing that you cannot audit. Two honest estimates will differ. Gamma is local and changes as soon as the spot moves, so a morning number is stale by the afternoon in a fast market. The estimate ignores over-the-counter options, ignores futures hedges already on, and ignores that customers hedge too. Use it as a regime hint in the most liquid index products, beside open interest and the chart. Do not use it as a precise level, and do not use a precise-looking number to justify a larger size. The uncertainty belongs in the size, not in a footnote you will forget when the number agrees with you.