Track 02Module 3 of 611 sources
Dealer positioning: gamma, vanna, charm and pinning
Explain how dealer hedging can dampen or amplify moves, and read a gamma exposure estimate with the right amount of doubt.
Key ideas
- Dealers hedge the options they hold. Long gamma dealers sell rallies and buy dips, which dampens moves. Short gamma dealers do the opposite and amplify them.
- Every gamma exposure number rests on an assumption about who is long and who is short. Treat it as an estimate of regime, not a level to trade.
- Vanna and charm describe how hedges change as volatility falls and time passes. They help explain slow drifts into expiry.
- Prices cluster near heavy strikes at expiry. The effect is documented, but it is a tendency and it breaks on news.
Start hereWatch or read these first. They carry the core idea.
Site
Gamma Exposure (GEX): How to Read a GEX Chart
SpotGamma
How to read a gamma exposure chart, from the firm that popularised it.
Gamma Exposure Explained (GEX): Put Walls, Call Walls & Expected Move
Video · Flow Zone Trader · 36:07
Put walls, call walls and the expected move in one long explainer.
How Vanna and Charm Effects Work
Video · Cboe Global Markets · 1:33
Vanna and charm in ninety seconds, from Cboe.
0DTE: Inside the Explosion of Ultra-Risky Options Trading | WSJ
Video · The Wall Street Journal · 5:16
Why same-day options grew so fast and why that matters for intraday flows.
CoreThe standard references. Work through them once the idea is clear.
PDF
Gamma Exposure (GEX) white paper
SqueezeMetrics · 2017
The original white paper on gamma exposure. Read the assumptions section closely.
Vanna, Charm & Dealer Hedging Flows
Video · SpotGamma · 13:38
Vanna and charm flows and when they matter most.
How Options Gamma, Vanna and Charm Flows Move the Markets
Video · Perfiliev Financial Training · 13:15
How gamma, vanna and charm flows move the index, with diagrams.
0DTE Options Trading Explained With Examples
Video · projectoption · 15:17
Same-day options with worked examples.
Paper
Hedging demand and market intraday momentum
Baltussen, Da, Lammers et al. · 2021 · Journal of Financial Economics · doi:10.1016/j.jfineco.2021.04.029
Hedging demand creates intraday momentum into the close. Strongest when gamma is negative.
Paper
Stock price clustering on option expiration dates
Ni, Pearson, Poteshman · 2005 · Journal of Financial Economics · doi:10.1016/j.jfineco.2004.08.005
The classic evidence that stock prices cluster at strikes on expiry.
Go deeperResearch, primary sources and data for when you want the detail.
Paper
Demand-Based Option Pricing
Gârleanu, Pedersen, Poteshman · 2009 · Review of Financial Studies · doi:10.1093/rfs/hhp005 · free copy
The theory: option prices reflect dealer inventory and end-user demand.
Practice
Each day for twenty sessions, note the Desk's SPY gamma estimate and the day's high-low range. Check whether negative-gamma days were wider.
See it live
Where this leads
02.4 · Options and Options FlowOptions flow: reading what others are doingInterpret unusual option activity honestly, separating informed bets from hedges, rolls and spread legs.01.2 · Order Flow and MicrostructurePrice impact and informed flowUnderstand why size moves price, why the cost of size grows slower than size, and how market makers detect dangerous flow.