Z Gamma Exposure (GEX)

What is Gamma?

Gamma is the rate of change between an option's Delta and the underlying asset's price. High Gamma values indicate that the Delta could change dramatically with relatively small price changes in the underlying stock.  

What is Gammax Exposure (GEX)?

When the price of a security changes, dealers, or market makers, are forced to adjust their hedges by either buying or selling the underlying security so their net gamma exposure is neutral or zero.  This is called Gamma hedging and it's because dealers avoid taking on market risk.  

Gamma exposure is the estimated dollar value that market makers must hedge for every 1% change in the underlying asset's price.

When dealers are net long gamma, dealers hedge by buying more with each point a security falls, and selling more with each point it rises, thereby suppressing volatility.

When dealers are net short gamma, dealers hedge by selling more with each point a security falls, and buying more with each point it rises, thereby increasing volatility.

The Net Gamma Exposure chart shows green bars (positive y-value) when dealers are net long and red bars (negative y-value) when dealers are net short.