Understanding Dealer Gamma Exposure

What is GEX?

Gamma Exposure (GEX) measures the aggregate gamma position of options market makers. When dealers are long gamma, their hedging activity dampens volatility. When short gamma, they amplify it.

The Mechanics

Consider a dealer who sold a call option. They delta-hedge by buying the underlying. As price rises:

• Delta increases → dealer buys more
• Price falls → delta decreases → dealer sells

When dealers are long gamma, this hedging creates a stabilizing effect — they buy dips and sell rips.

When short gamma (common around large put open interest), the opposite occurs — they sell into selloffs and buy into rallies, creating a volatility-amplifying feedback loop.

Calculating Net GEX

def calculate_gex(chain):
    gex = 0
    for _, row in chain.iterrows():
        gamma = row['gamma']
        oi = row['openInterest']
        multiplier = 100  # standard equity options
        sign = 1 if row['type'] == 'call' else -1
        gex += gamma * oi * multiplier * sign
    return gex

Trading Implications

GEX Level	Expected Behavior	Strategy
High positive	Low vol, mean-reversion	Sell premium
Near zero	Transition zone	Reduce size
Negative	High vol, trending	Buy breakouts

The GEX Flip Level

The price at which GEX transitions from positive to negative is called the "GEX flip." This level often acts as a magnet for price action and a pivotal support/resistance zone.