What gamma exposure actually is

Every option you buy, somebody sold. Most of the time that somebody is a market maker who has no opinion about direction at all — their business is collecting the spread, not betting on the market. So the moment they sell an option, they hedge it with stock, and from then on they must keep adjusting that hedge as price moves.

Gamma exposure — GEX — is a map of how much adjusting they have to do, strike by strike. It is not a secret signal. It is an estimate of the mechanical buying and selling that dealers are obligated to do, built from the option chain that everyone can see.

Delta first, then gamma

An option’s delta says how much it behaves like stock. A 0.50-delta call moves about fifty cents when the stock moves a dollar, so a dealer who sold that call buys fifty shares to be flat.

Gamma says how fast that delta changes. High gamma means the hedge goes stale quickly: the stock moves, the delta jumps, and the dealer has to trade again. Gamma is largest at the strike and near expiry — exactly where small moves force the biggest re-hedging.

Why the sign matters more than the size

When dealers are long gamma, their re-hedging leans against the market: price rises, their delta grows, they sell some; price falls, they buy some. That constant lean dampens moves — rallies get sold, dips get bought, and the day chops.

When dealers are short gamma, the same mechanics flip. Price rises and they must buy more; price falls and they must sell more. Their hedging now pushes in the direction of the move, and ordinary flows travel further than they otherwise would. None of this is folklore — intraday hedging demand of exactly this kind, and the momentum it creates, is documented in Baltussen, Da, Lammers and Martens (2021).

Where the numbers come from

For each strike and expiry, take the open interest, estimate the gamma per contract, and multiply out to shares — then to dollars per one percent move. Sum the calls against the puts and you get a profile: a bar per strike showing where hedging pressure concentrates.

The one honest caveat: open interest does not say who is long. The standard convention — dealers long calls sold to them, short the puts they sold — fits index products well and individual names less reliably. That is why single-stock GEX deserves more scepticism than SPX GEX, and why we present positioning as context rather than a trade ticket.

What to do with it on day one

• Check the sign of net gamma before the open — it tells you whether to expect chop or travel, not direction.
• Note the two or three biggest strikes. Those are where hedging is concentrated and where price behaviour tends to change character.
• Watch how price behaves the first time it touches one. The reaction teaches you more than the level itself.