Do market makers bet on direction?

Mostly not. They earn the bid-ask spread and hedge away directional risk, keeping their exposure close to neutral.

What is a gamma squeeze?

When hedgers short gamma must keep buying stock as it rises, feeding the rally. See our gamma squeeze guide.

How can I see dealer positioning?

Gamma exposure estimates it by strike. Obelion shows it free for major tickers.

How do market makers hedge options?

Market makers hedge options mainly by trading the underlying stock to stay delta neutral. After selling a call, they buy shares; after selling a put, they short shares. As price moves, delta changes by an amount set by gamma, so they keep rebalancing. That rebalancing is the stock flow gamma exposure tries to estimate.

See estimated dealer gamma

Delta, then gamma

Delta is the share-equivalent exposure of an option. A market maker short a 0.40 delta call buys 40 shares per contract to offset it. If the stock rises and delta becomes 0.55, they must buy 15 more. Gamma is the rate of that change.

When hedging moves the market

Long gamma hedgers sell into rallies and buy dips, which dampens moves. Short gamma hedgers buy rallies and sell dips, which amplifies them. On heavily traded products like SPX and SPY, this flow is large enough to matter.

Questions

Do market makers bet on direction?: Mostly not. They earn the bid-ask spread and hedge away directional risk, keeping their exposure close to neutral.
What is a gamma squeeze?: When hedgers short gamma must keep buying stock as it rises, feeding the rally. See our gamma squeeze guide.
How can I see dealer positioning?: Gamma exposure estimates it by strike. Obelion shows it free for major tickers.

For education only, not financial advice. See the disclaimer.

Delta, then gamma

When hedging moves the market

Questions

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