A positive gamma environment occurs when options market makers are net long gamma across the market. In this regime, dealer hedging dampens price movements rather than amplifying them, creating a fundamentally different—and generally calmer—market character.

The Mechanics

When dealers are long gamma (typically from buying options or being net short options with heavy ATM concentration):

Price Rises

1. Long call deltas become more positive
2. Dealers have excess long delta exposure
3. They must sell to re-hedge
4. Selling caps the rally → mean reversion

Price Falls

1. Long put deltas become more negative
2. Dealers have excess short delta exposure
3. They must buy to re-hedge
4. Buying cushions the decline → mean reversion

This is the opposite of a negative gamma environment, where dealers amplify moves.

Visual: The Dampening Effect

Positive Gamma                    Negative Gamma
──────────────                    ──────────────
Price ↑ → Sell → Dampens         Price ↑ → Buy → Amplifies
Price ↓ → Buy  → Dampens         Price ↓ → Sell → Amplifies

Result: Mean Reversion           Result: Momentum/Trends
        Low Volatility                   High Volatility

Identifying Positive Gamma

Quantitative Signals

Metric	Positive Gamma Indication
Aggregate GEX	Above zero (and rising)
Put/Call OI balance	Moderate, balanced positioning
VIX level	Low to moderate (<20)
VIX term structure	Contango (normal upward slope)

Market Behavior Signals

• Tight intraday ranges
• Failed breakdowns that reverse quickly
• Gaps tend to fill
• Low realized volatility
• Dips get bought, rallies get sold

When Markets Go Positive Gamma

Common Conditions

1. Post-selloff recovery: Put sellers emerge after panic subsides
2. Low VIX regime: Less demand for protection, balanced positioning
3. Post-OPEX: Heavy put OI rolls off after expiration
4. Range-bound markets: Dealers accumulate gamma at key strikes

Historical Context

Bull markets and low-volatility regimes typically feature positive gamma:

• 2017: Extremely low VIX, persistent positive gamma
• 2019: Post-2018 recovery, return to positive gamma
• 2021 (most of): Despite meme stocks, index gamma often positive

Trading in Positive Gamma

What Works

Strategy	Rationale
Mean reversion	Dealers provide support/resistance
Selling premium	Low vol, high win rate
Range strategies	Moves tend to reverse
Smaller position sizes	Less risk, but less reward

What Doesn't Work

Strategy	Why It Struggles
Trend following	Moves don't extend
Breakout plays	False breakouts common
Buying volatility	Theta decay wins
Large directional bets	Dampened payoff

Positive Gamma and Volatility

Positive gamma environments correlate with suppressed realized volatility:

Gamma Regime	Typical Daily Range	Realized Vol
Highly positive	0.3-0.5%	8-12% annualized
Neutral	0.5-0.8%	12-16% annualized
Negative	1.0-2.0%+	20-40%+ annualized

The "Pinning" Effect

In strongly positive gamma regimes, price can become "stuck" near high-OI strikes:

1. Price approaches a strike with large gamma
2. Dealer hedging creates strong resistance/support
3. Price oscillates around the strike
4. This effect intensifies into expiration (gamma increases)

Max pain theory relates to this—expiration settlement near strikes that minimize payout to option holders often coincides with maximum dealer gamma.

Duration of Positive Gamma Regimes

Positive gamma environments tend to be:

• Longer-lasting than negative gamma regimes
• Self-reinforcing (low vol → less hedging demand → lower vol)
• Punctuated by occasional negative gamma episodes

These regimes can persist for weeks or months until a catalyst (earnings, macro event, geopolitical shock) shifts positioning.

Related Concepts

• Gamma Exposure (GEX) - How we measure aggregate gamma
• Negative Gamma Environment - The opposite regime
• Gamma Flip Level - The transition point between regimes