← InstitutionalLesson 11 · 3:48
Dealer gamma: who damps the move and who amplifies it?
Summary
You can explain why long-gamma dealer hedging damps moves and short-gamma hedging amplifies them. You can describe how the public estimate of dealer gamma (GEX) is built from open interest and an assumption, read its flip level, and explain why changing the assumption can reverse the story.
Key terms
- dealer gamma
- The total gamma that the dealers on the other side of customers' options are estimated to hold, which sets how their hedging pushes the index.
- damping
- Hedging that leans against moves, selling rises and buying falls, so swings shrink.
- amplifying
- Hedging that pushes moves further, buying rises and selling falls, so swings grow.
- open interest
- How many contracts have been opened and not yet closed.
- gamma exposure (GEX)
- The estimated dollars of the index that dealers would trade for each 1% move, built from open interest and an assumption.
- flip level
- The index level where estimated dealer gamma crosses from short to long.
Check yourself
Answer each question to see why the right answer is right.
1. A dealer is long gamma. Which way do they hedge, and what does that do to price swings?
2. A dealer is short 10,000 XYZ $100 calls with 30 days left. If XYZ rises $1 they must buy about 46,000 shares; at $3 up, about 133,000. Why does this matter?
3. How does the public dealer gamma estimate know which side dealers are on?
4. On 2 Nov 2026 SPX closed at 7,541 under an estimated flip level of about 7,660, with dealer gamma about minus $80 billion per 1% move. Then the assumption changes to dealers short both calls and puts. What happens?
5. Split by days to expiry, one-day options carried about minus $15 billion (about 19%) and options up to 30 days carried 86% of the estimate. What follows?
Finished the video and the quiz? .