What is GEX?
Gex is short for Gamma Exposure.
I started tracking gamma exposure over a year ago. In fact I posted an idea with a really good explanation idea of gamma exposure but the idea was banned and I never got around to reposting.
So many private messages asking me to explain GEX, I decided to repost the banned post without the restricted content in it. If you want the restricted content, send me a message and I will send you the link
==== Original Idea posted March 6th 2022 ========
I finished updating the simple GEX tool. This tool is for educational purposes only and gives a very basic/naive overview of gamma exposure for any Ticker.
So What is GEX?
GEX stands for Gamma EXposure. Options are derivatives of financial assets that give investors more.. options. Gamma is the rate of change in an options delta per 1-point move in the underlying asset's price. When someone buys an option, there is typically a market maker (dealer) that needs to sell that option to you. Because the dealer does not want to take directional risk on the other side of the option, they hedge the option by buying or selling the underlying asset. As the price changes, the dealer must continuously make changes to that hedge to remain delta neutral.
Gamma Exposure, in this tool's case, Naive Gamma Exposure is an estimated measurement of gamma exposure that a dealer has taken on based on the full options chain's open interest. It is an estimate because nobody really knows if an option's open interest was bought or sold to a dealer.
Negative\Positive Gamma is hedged differently by dealers. If a dealer is positive gamma they will sell the rally (price up) and buy the dips (price down). Positive gamma creates a supportive and less volatile, more liquid market. If a dealer is negative gamma they will buy the rally and sell the dips. Negative gamma creates more selling pressure and more volatility, an illiquid market.
Zero Gamma or Gamma Flip is the assumed point at which dealers would flip from negative gamma exposure to positive. When the dealer is positive gamma, the Zero Gamma strike will usually act as support. When the dealer is negative gamma, the Zero Gamma strike acts as resistance.
GEX can measure individual asset gamma exposure but is more effective at measuring overall market indexes such as SPX and NDX. GEX shouldn’t be used as a directional measurement, but more of a volatility indicator.
Notional GEX is the dealers notional (total dollars) exposure in 1% move in the underlying assets price. If SPX is -20B for example, dealers will have to buy 20 billion in underlying shares for every 1% move up, or sell 20 billion for every 1% move down.
Option Quotes are delayed by 15 minutes from the open and close of the Regular Trading Hours.
Disclaimer: The GEX tool is meant to be used for educational purposes only. It is NOT meant to be used for/as financial advice. Use at your own risk.
The reason I included the JHEQX HEF Pin is because of how the different expirations effect the markets at different times.
The general idea I like to emphasize in my naive understanding of these market mechanics is TIME.
Notice in the following ideas from the past 3 months all have the 4165 HEF Pin in the forecast.
This is only possible by calculating the Gamma Exposure of the options sold to JPM and making some assumptions (next time).
I started tracking gamma exposure over a year ago. In fact I posted an idea with a really good explanation idea of gamma exposure but the idea was banned and I never got around to reposting.
So many private messages asking me to explain GEX, I decided to repost the banned post without the restricted content in it. If you want the restricted content, send me a message and I will send you the link
==== Original Idea posted March 6th 2022 ========
I finished updating the simple GEX tool. This tool is for educational purposes only and gives a very basic/naive overview of gamma exposure for any Ticker.
So What is GEX?
GEX stands for Gamma EXposure. Options are derivatives of financial assets that give investors more.. options. Gamma is the rate of change in an options delta per 1-point move in the underlying asset's price. When someone buys an option, there is typically a market maker (dealer) that needs to sell that option to you. Because the dealer does not want to take directional risk on the other side of the option, they hedge the option by buying or selling the underlying asset. As the price changes, the dealer must continuously make changes to that hedge to remain delta neutral.
Gamma Exposure, in this tool's case, Naive Gamma Exposure is an estimated measurement of gamma exposure that a dealer has taken on based on the full options chain's open interest. It is an estimate because nobody really knows if an option's open interest was bought or sold to a dealer.
Negative\Positive Gamma is hedged differently by dealers. If a dealer is positive gamma they will sell the rally (price up) and buy the dips (price down). Positive gamma creates a supportive and less volatile, more liquid market. If a dealer is negative gamma they will buy the rally and sell the dips. Negative gamma creates more selling pressure and more volatility, an illiquid market.
Zero Gamma or Gamma Flip is the assumed point at which dealers would flip from negative gamma exposure to positive. When the dealer is positive gamma, the Zero Gamma strike will usually act as support. When the dealer is negative gamma, the Zero Gamma strike acts as resistance.
GEX can measure individual asset gamma exposure but is more effective at measuring overall market indexes such as SPX and NDX. GEX shouldn’t be used as a directional measurement, but more of a volatility indicator.
Notional GEX is the dealers notional (total dollars) exposure in 1% move in the underlying assets price. If SPX is -20B for example, dealers will have to buy 20 billion in underlying shares for every 1% move up, or sell 20 billion for every 1% move down.
Option Quotes are delayed by 15 minutes from the open and close of the Regular Trading Hours.
Disclaimer: The GEX tool is meant to be used for educational purposes only. It is NOT meant to be used for/as financial advice. Use at your own risk.
The reason I included the JHEQX HEF Pin is because of how the different expirations effect the markets at different times.
The general idea I like to emphasize in my naive understanding of these market mechanics is TIME.
Notice in the following ideas from the past 3 months all have the 4165 HEF Pin in the forecast.
This is only possible by calculating the Gamma Exposure of the options sold to JPM and making some assumptions (next time).
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