$SPX

OPEX is now behind us... Some may have found the price action boring, but we found it fascinating.

Here is an overview of today's trading session.

Notice how the underlying price followed this yellow line throughout the day.

Why?🧵 What you see on this heatmap is market makers' gamma exposure, projected throughout the trading day.

Blue represents positive gamma, with dark blue indicating higher positive gamma.

Red represents negative gamma, with dark red indicating higher negative gamma.

We analyze market makers' gamma exposure because they are delta hedgers. They actively trade the underlying asset to offset the directional risk of their options portfolio.

Gamma measures how they will buy or sell the underlying asset to protect their options portfolio as the underlying price changes.

💭Ever wondered about GEX?

Gamma: a term that's always buzzing in trading.

But why is it so crucial to track?

Let's dive in and debunk the common misconceptions.

Here's the real story behind it 🧵 Background:

The primary goal of dealers is to profit from the spreads in trading.

However, the real challenge lies in the fluctuations of delta in their options positions, which introduce increased risks.

These risks are managed through a process called delta hedging.

GEX, or Gamma Exposure, is fundamentally tied to how dealers manage their options portfolios.

Simply put, dealers strive to maintain a neutral delta in their portfolio.

As the overall delta of their options portfolio increases, they sell the underlying to rebalance. Conversely, when their portfolio's delta decreases, they buy the underlying.

Briefly...

Gamma, essentially, measures the rate of change of delta relative to the underlying price. It's our tool to gauge whether dealers need to buy or sell as the underlying price shifts.