Overview
This podcast episode provides an in-depth explanation of reading gamma exposure charts for SPX 0DTE options, focusing on how intraday gamma dynamics influence price action and hedging activities in the options market.
Importance of Gamma Exposure in 0DTE Options
- 0DTE options now comprise roughly 50–70% of SPX option volume, influencing market moves.
- Both retail and institutional traders use 0DTE options for hedging and positioning.
- Intraday option volume is high enough to move underlying prices significantly.
Gamma Exposure vs. Open Interest
- Open interest shows total open contracts by strike and is updated daily, not intraday.
- Gamma exposure considers the acceleration of option price relative to the underlying; it better reflects hedging pressures.
- At-the-money options have the highest gamma, making them most sensitive and risky for sellers.
Reading Gamma Exposure Charts
- Multiply an option’s gamma by contract size, open interest, and spot price for exposure.
- Positive for calls, negative for puts; some charting tools make simplifying assumptions about trade direction.
- Gamma exposure shifts as underlying price and time to expiry change.
Interpreting Market Impact
- Large gamma nodes (e.g., at major strikes like 4100 and 4150) can act as dynamic support/resistance zones.
- As strikes approach expiration, their gamma decays, reducing hedging impact and potentially enabling price moves.
- The interaction between call and put gamma can "wall in" price, limiting movement until decay or volume shifts.
- Feedback loops can create gamma squeezes if spot price breaks major nodes in the direction of highest gamma.
Practical Examples and Intraday Dynamics
- Charts from various intraday points demonstrate how gamma exposure evolves and constrains SPX price moves.
- Afternoon and end-of-day moves are shaped by decaying gamma and potential unwinding of positions.
- Observing node laddering (sequential strike levels with building gamma) can forecast squeezes or consolidations.
Chart Reading Strategies and Insights
- Use both open interest and volume-based gamma charts for context, but recognize their assumptions and limitations.
- Watch max change in gamma by strike and zero gamma levels for potential pivots or support/resistance cues.
- Clean laddering across strikes can indicate potential for directional moves via feedback loops.
Recommendations / Advice
- Spend time observing intraday gamma changes and relate them to price action for practical understanding.
- Focus on which strikes are attracting or repelling price, and whether potential "walls" are forming.
- Do not rely solely on large open interest or gamma nodes; consider time, decay, and the overall gamma structure.