Master Options Trading with Gamma Exposure
Unlock market insights by understanding how dealer positioning can influence price movements. This guide will turn complex concepts into actionable trading knowledge.
Go to GEX TrackerWhat is Gamma Exposure (GEX)?
Gamma Exposure, or GEX, is a measure of the sensitivity of option delta to changes in the underlying asset's price. In simpler terms, it shows how much market makers and dealers will need to buy or sell of an asset to hedge their positions as the price moves.
The "Price Magnet" Analogy
Think of GEX as a gravitational pull on the stock price.
High Positive Gamma: Acts like a stabilizer. As the price moves away from a key level, dealers hedge by buying dips and selling rips, often pinning the price in a range.
High Negative Gamma: Acts like an accelerator. As the price moves, dealers are forced to chase it—selling more as it drops and buying more as it rises, which can lead to volatile, trending moves.
How to Use the GEX Tracker
Interpreting the Chart
Our tracker visualizes these "magnet" levels for any given stock and expiration date. Here's how to read it:
- Large Green Bars (Positive Gamma): Indicate significant price levels where the price may become "sticky" and act as support or resistance.
- Large Red Bars (Negative Gamma): Highlight levels where a price breach could lead to accelerated, volatile moves.
- Zero Gamma Level: This is the tipping point. A cross above or below this level can signal a shift in the market's hedging dynamics from stable to volatile, or vice-versa.
Trading Strategies with GEX Analysis
Identifying Support & Resistance
Look for the largest positive gamma bars. These levels often act as strong magnets for price. A trader might look to sell calls or puts around these levels, expecting the price to revert to them, or use them as profit targets.
Playing Volatility Breakouts
When the stock price approaches the Zero Gamma level or a large negative gamma zone, it's a signal that volatility could expand. A breach of these levels can be a trigger for entering trend-following trades like buying a call or put.
Trend & Reversal Confirmation
Use GEX levels to confirm your existing analysis. If a stock is approaching a key support level on your chart that also corresponds with a high positive gamma level, it adds conviction to a potential bounce trade.