What is Gamma Exposure (GEX)?
Gamma exposure is the aggregate gamma position of options dealers across an underlying. Positive GEX dampens moves (dealers buy dips, sell rips); negative GEX amplifies them.
Definition
Gamma exposure (GEX) is the sum of gamma across all open options positions, weighted by open interest and signed by a dealer-positioning assumption (typically: dealers are short calls that the public buys, long puts the public sells, etc.). When the sum is positive, dealers as a class are net long gamma — meaning their delta-hedging activity is mean-reverting: they sell when the market rallies and buy when it falls. When negative, the opposite: they chase the move, amplifying it. The level of underlying at which GEX crosses zero is called the "gamma flip" and is one of the most important intraday levels in modern equity markets.
Why it matters & how it's calculated
A serious GEX calculation does more than sum OI × gamma. It uses different positioning assumptions per strike and per expiry (retail-heavy strikes vs institutional-hedging strikes), accounts for vanna and charm flow alongside pure gamma, weights by the underlying notional rather than per-contract gamma, and integrates real-time option-volume data to update the positioning assumption intraday. The output is a profile of dollar-gamma per spot level, often displayed alongside a "max-pain" or "max-gamma" strike. Above the gamma flip, the typical regime is: tight intraday ranges, vol crushes into the close, pin to high-OI strikes. Below the flip: violent breakouts, end-of-day acceleration, late-session vol expansion. GEX is a regime variable, not a directional signal — it tells you the TYPE of move to expect, not which way it goes. A trader who can read GEX properly knows when to fade and when to chase.
Formula
GEX_strike = OI × γ × 100 × spot² × sign(positioning) | GEX_total = Σ GEX_strike
Worked example
SPX at 5,000, GEX profile shows positive gamma above 4,950 and negative below. The "gamma flip" is at 4,950. As long as SPX stays above 4,950, expect dealer hedging to dampen moves — range-bound action, vol selling works. If SPX breaks 4,950, expect a quick acceleration lower as dealer hedges flip to selling-into-weakness. Trade plan: fade extremes above the flip, respect breakouts below it.
Related concepts
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