Module 2 · Dealer Gamma
GEX & the Two Regimes
Long gamma dampens; short gamma amplifies.
In this lesson you'll
- Define gamma exposure (GEX)
- Contrast positive vs negative gamma regimes
- Map each regime to expected behavior
| Positive GEX (dealers LONG gamma) | Negative GEX (dealers SHORT gamma) | |
|---|---|---|
| Hedging | Buy dips, sell rips (trade AGAINST the move) | Buy rips, sell dips (trade WITH the move) |
| Effect on vol | Dampens volatility; mean-reverting; pinning | Amplifies volatility; trending; acceleration |
| Typical day | Tight range, compressed | Wide range, gap-prone, VIX spikes |
Key takeaways
- GEX models dealer hedging per ~1% move (gamma × OI × spot² …).
- Positive/long gamma: dealers buy dips, sell rips → dampened vol, mean reversion, pinning.
- Negative/short gamma: dealers buy rips, sell dips → amplified vol, trend, gaps.
- GEX overstates real flows; direction is agreed, magnitude is disputed.
Check your understanding
Pick an answer to reveal instant feedback. Answer every question to complete the lesson.
Why that's off: That's the NEGATIVE gamma regime (amplifying).
Why that's off: They hedge continuously; they don't sit still.
Why that's off: They hedge both directions (buy dips AND sell rips).
Long-gamma dealers hedge against the move — buying dips and selling rips — which compresses volatility and tends to pin price (mean reversion).
Why that's off: That's the positive-gamma regime.
Why that's off: Negative gamma amplifies, not removes, volatility.
Why that's off: Mean reversion is the positive-gamma behavior.
Short-gamma dealers hedge WITH the move (buy rips, sell dips), which amplifies volatility and feeds trends/acceleration — wide, gap-prone days.
Educational content only. Nothing here is financial or trading advice. Order-flow and options patterns shift probabilities; they never guarantee outcomes.