Thread by @kerberos007

I've received many questions about the dealer GEX

I don't like to post this chart for a reason

There are too many assumptions in the calculation

There is no way from Options daily volume/OI, we would know the dealer's long or short positions

So this is for educational only🧐

From above, just over $2 bn of dealer GEX per 1 point SPX move when GEX >0

In other words, dealer would need to sell $20 bn stonks Mon morning if SPX gaps up 10 points for hedging their options exp

That's a huge headwinds for the Robinhood'er🦃

Hence all gaps will be closed🙃

From the above chart:

When GEX > 0
Dealer acting as a mean-reversion force:
They need to sell stocks for hedging, when SPX up
They need to buy stocks foe hedging, when SPX down

Hence when GEX>0, expecting slow market with low volatility (melt-up slowly and BTFD'er are happy)

From the above chart

When GEX < 0
Dealer acting as a directional momo chaser:
They need to sell stocks for hedging, when SPX down
They need to buy stocks for hedging, when SPX up

Hence when GEX<0, expecting fast market with high volatility (rug pull, turkey & bears happy)🐻👌

When there is a huge capitulation in $SPX like Dec 2018, Mar 2020, the dealers're Gamma negative bigly, hence the first phase of rally off the abyss would be fierce, due to the massive negative dealer Gamma, GEX<0, making them the momo chaser along with the massive short squeeze

GEX<0
dealers would act as directional momo chasers
especially when SPX down markedly with VIX spiking higher, -ve GEX would also increase exponentially

Hence the "Gamma flip" from positive to negative with SPX plunging bigly, the momo chasers would sell stocks on the way down

Okay

very basic options Greeks for delta hedging:

A long 1000 share of X =>delta=1000
B short 1000 shares of X =>delta= -1000
C long 10 ATM calls of X =>delta=500
D long 10 ATM puts of X =>delta= -500
E short 10 ATM calls of X =>delta= -500
F short 10 ATM puts of x =>delta=500

If you own 1000 shares of X & want to hedge with options for delta neutral position & Gamma scalping

long 1000 shares of X =>delta = 1000
short 20 ATM calls of X =>delta = -1000

Your net delta would be Zero. You positions are called delta neutral in a very narrow stock range

also

long 1000 shares of X =>delta = 1000
long 20 ATM puts of X =>delta = -1000

your net delta would be zero

Your hedged positions are called delta-neutral in a very narrow stock range

In other word, in a narrow stock movement up or down, your positions are hedged perfectly

to be continued.... 😎