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Tuesday, June 17th
Gamma 101: The Hidden Force Behind Big Market Moves
If you’ve ever wondered why the market feels like it’s pinned to a certain price—or why it suddenly breaks loose with explosive force—chances are you’re feeling the effects of gamma. This post kicks off a new series that will take you inside the engine room of the options market, starting with one of the most misunderstood yet powerful concepts: gamma.
What Is Gamma?
At its core, gamma measures how much an option’s delta changes as the underlying price moves. While delta tells us how much an option’s price will move per $1 change in the stock, gamma tells us how fast delta itself is changing.
Think of delta like the speed of a car, and gamma like the gas pedal. A high gamma environment means that small changes in the stock price can cause option deltas to accelerate quickly. This matters a lot—especially for market makers and institutions who are hedging massive positions.
In technical terms:
Gamma is the rate of change of delta with respect to the underlying asset’s price.
But in market terms:
Gamma can stabilize or destabilize price action, depending on whether market makers are buying or selling stock to hedge.
Why Gamma Matters
Gamma is what makes the difference between a slow grind and a violent rip. It’s the mechanism that can pin a stock to a strike price… or cause a sudden melt-up or crash.
When market makers are short options, they tend to hedge by buying or selling stock. Whether they hedge into a move (amplifying it) or against it (dampening it) depends on the sign of gamma:
- Positive gamma (usually when options are sold-to-open near current prices): Market makers are buying dips and selling rips, keeping price stable.
- Negative gamma (often from long speculative options further out-of-the-money): Market makers are chasing moves, which can lead to volatility.
Understanding where gamma is concentrated—and whether the market is in a positive or negative gamma regime—can help traders anticipate price behavior and volatility shifts.
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How OPEX Affects Gamma
Options expiration (OPEX) plays a massive role in the gamma landscape. As contracts approach expiration—especially during the last few days—gamma increases dramatically near the money.
Here’s how:
- Weekly OPEX (every Friday) can cause short-term gamma squeezes, especially in single stocks with heavy speculative flow.
- Monthly OPEX (third Friday of each month) tends to have more structural impact, especially on indexes and ETFs like SPX and QQQ.
As options decay into expiration, the gamma profile becomes sharper. Positions get closed, hedges unwind, and that can cause sudden, directional moves or even “pinning” behavior as large players defend strikes.
Coming Up Next: How to Spot Gamma Levels
In the next post in this series, we’ll walk through how you can manually identify areas of high gamma using the options chain—without relying on expensive tools like SpotGamma. You’ll learn how to look for open interest clustering, understand dealer positioning, and identify where the market may be “magnetized” or vulnerable to breaking loose.
Whether you’re a swing trader, options scalper, or just curious about what drives the tape, gamma is a powerful lens to add to your toolkit.
Stay tuned—this rabbit hole goes deep.