๐งฌ What is GEX (Gamma Exposure)?
Gamma โ The Short Version
Every options contract has a gammavalue. Gamma measures how fast an option's delta changes when the underlying stock moves $1. Higher gamma means the option's sensitivity to price changes is accelerating.
Who Cares About Gamma? โ Dealers Do
When you buy a call option, a market maker (dealer) sells it to you. They're now short gamma. To stay hedged, they must buy shares as the stock goes up and sell shares as it goes down. This is called delta hedging.
The more open interest at a strike price, the more shares dealers need to trade for hedging. This creates measurable buying and selling pressure at specific price levels.
The GEX Formula
Gamma Exposure (GEX)quantifies the total dollar amount of shares dealers must buy or sell per $1 move in the underlying. It's calculated for every strike and expiration:
GEX = ฮ ร Open Interest ร 100 ร Spot Price
- Calls contribute positive GEX (blue on the heatmap) โ dealers hedge by selling into rallies and buying dips.
- Puts contribute negative GEX (green on the heatmap) โ dealers hedge by selling into dips and buying rallies.
- The ร 100 is the standard options contract multiplier โ each contract represents 100 shares of the underlying.
The "per $1" variant is the default. GammaBaba also supports a "per 1% move" variant which normalizes across different stock prices โ useful when comparing tickers like SPY ($500+) vs AAPL ($200).
Why GEX Matters
Large GEX concentrations create mechanical hedging pressure that can influence price behavior:
- High positive GEX (blue) โ Dealers are long gamma. They sell into rallies and buy dips โ tends to dampen volatility, creating a zone where price often consolidates.
- High negative GEX (green) โ Dealers are short gamma. They sell into dips and buy into rallies โ tends to amplify volatility, creating conditions where moves can accelerate.
Positive vs Negative GEX Environment
| Environment | Dealer Behavior | Typical Market Characteristic |
|---|---|---|
| Net Positive GEX | Buy dips, sell rips | ๐งฒ Lower vol, mean-reversion tendency, pinning |
| Net Negative GEX | Sell dips, buy rips | ๐ฅ Higher vol, trend acceleration, gaps |
Where Does the Data Come From?
GammaBaba uses real-time options snapshot data โ strike prices, open interest, and greeks โ from market data APIs. When greeks aren't available from the API, we estimate gamma using established options pricing models with implied volatility derived from each contract's own market price. Each strike and expiration gets its own IV โ we never apply a single flat volatility assumption across the board. This is the "๐งฎ BS" mode you'll see in the app.
Spot prices come from Yahoo Finance quote data. Everything updates in real-time during market hours.
- GEX is a data visualization tool โ it maps mechanical hedging pressure, not future price direction
- The largest GEX concentrations often coincide with observable support/resistance zones
- Positive GEX = dealer stabilization tendency, Negative GEX = dealer amplification tendency
- GEX changes every day as options expire, new positions open, and OI shifts
- Near-term expirations have higher gamma โ more hedging impact
- Calls add positive GEX (blue), Puts add negative GEX (green)
- GEX is a model โ validate key levels with fixed-strike IV to check if the market agrees