Gamma and Gamma Exposure—Knowing the Basics
In 2021, $SPX options make up 16% of the $SPX market cap . To hedge a book of $SPX options, the primary risk-management technique is delta hedging , which is when option traders start messing about in the equity markets. Some may recall the Gamestop ( $GME ) saga that took place earlier this year - Much of this bizarre and explosive move was attributed to Gamma Exposure (GEX), which was a prime example of how the mechanics of gamma exposure can influence market action in a very powerful way. Chart 1. Estimated SPX Dealer Gamma Exposure - All Expirations (Source: @t1alpha ) Option Greeks An option's price can be influenced by a number of factors that can either help or hurt traders depending on the type of positions they have taken. [1] Successful traders understand the factors that influence options pricing , which include the so-called " Greeks "— a set of risk measures so named after the Greek letters that denote them, which indicate how sensiti...