Gamma Exposure, commonly abbreviated as GEX, measures the aggregate gamma held by options market makers across all strikes for a given underlying. It reveals how much dealers must buy or sell the underlying asset to maintain delta-neutral hedges as the spot price moves.

Why GEX Matters

When market makers sell options to retail and institutional traders, they inherit gamma exposure. To remain delta-neutral, they must continuously hedge:

• Long gamma → Dealers sell into rallies and buy into dips (dampening volatility)
• Short gamma → Dealers buy into rallies and sell into dips (amplifying volatility)

The aggregate positioning of dealers directly influences market microstructure and realized volatility.

The Formula

Gamma exposure at a given strike $K$ is calculated as:

$GEX_K = \Gamma_K \times OI_K \times 100 \times S^2 \times 0.01$

Where:

• $\Gamma_K$ = Gamma at strike $K$
• $OI_K$ = Open interest at strike $K$
• $S$ = Spot price
• The factor of 100 accounts for the options multiplier
• The 0.01 normalizes for a 1% move

Total GEX is the sum across all strikes, accounting for the directional sign (calls vs puts from the dealer's perspective).

Interpreting GEX Levels

GEX and Support/Resistance

Large concentrations of gamma at specific strikes create natural support and resistance levels. When GEX is clustered at a strike:

1. Price approaching that level triggers dealer hedging
2. Hedging activity creates buying/selling pressure
3. Price tends to "stick" near high-gamma strikes (pinning effect)

Practical Application

Track aggregate GEX to:

• Anticipate volatility regimes
• Identify key price levels where dealer hedging creates resistance/support
• Understand why markets may be "sticky" or "slippery"

GEX Vs Vanna at a Strike

It has been stated that a large negative vanna exposure at a strike can completely negate or at least reduce the effects of a large positive gamma exposure at that strike. This is because vanna exposure causes dealers to adjust their hedges in response to changes in implied volatility, which can offset the hedging activity driven by gamma exposure alone. The question that comes into play is if volatility or price dominates at that strike in the underlying. In other words, a volatile move through an otherwise 'strong' positive gamma strike may not see the expected pinning effect if the vanna exposure is large enough to cause dealers to adjust their hedges in a way that counteracts the gamma-driven hedging.

Note we do not discuss a per strike charm flows at all here - charm flows occur from the passage of time only and are not price dependent.

Related Concepts

• Vanna Exposure (VEX) - How volatility changes affect dealer hedging
• Charm Exposure (CEX) - How time decay affects dealer hedging
• Negative Gamma Environment - When dealers amplify moves
• Gamma Flip Level - The transition point between regimes