Unusual Whales Platform: Gamma Exposure Dashboard

Key Concepts

• Gamma: Rate of change of an option's Delta; akin to acceleration in physics.
  • Delta: Comparable to velocity.
  • Gamma peaks at-the-money (ATM); highest at ATM strikes.
• Gamma Exposure (GEX): Total gamma across options; can be positive or negative.

Market Maker Reactions

• Positive Gamma Environment:
  • Market maker sells in rallies, buys in dips to offset exposure.
• Negative Gamma Environment:
  • Market maker sells in dips, buys in rallies. Can lead to higher price volatility.

Gamma Exposure Analysis

• Amazon Example:
  • Historically positive gamma exposure.
  • Brief periods of negative gamma from Sep to Oct 2023.
  • Positive gamma led to gentle selling into rips and buying into dips by market makers.

Gamma by Strike

• Chart Analysis:
  • Ignores expiration dates.
  • Short-term phenomenon: near-dated options have higher gamma than far-dated ones.
  • Example: Amazon $180 strike gamma drops from 35 to 0.27 from May 31 to July 5 expiration.
• Expiration proximity impacts gamma contribution significantly.

Call and Put Gamma

• Gamma Concentrations:
  • Call and put gamma can be assessed separately.
  • ATM strike exhibits highest gamma.
  • As price moves away from ATM, gamma exposure decreases.

Net Gamma

• Net Calculation:
  • Call gamma plus put gamma.
  • Highlights open interest concentration.
  • Example: Amazon $185 strike likely indicates market makers long on this contract.

Volatility Suppression

• Market Maker Impact:
  • Market makers suppress volatility around significant strikes (e.g., $185).
  • As stock price approaches strike, gamma increases, market maker actions suppress large movements.

Meta vs. Amazon Comparison

• Gamma and Price Volatility:
  • Meta has had less positive gamma exposure, leading to more volatile price swings.
  • Amazon shows steady uptrend due to positive gamma environment and market maker suppression.

Short-term Speculation

• Speculation Examples:
  • Traders may monetize out-of-the-money (OTM) options as they become in-the-money (ITM).
  • Short-dated options are more speculative, akin to a "hot potato."

Practical Application

• Gamma Exposure by Expiry:
  • Can indicate mean reversion trade opportunities.
  • Fast trades around short-dated options; call/put gamma analyzed separately reveals open interest concentrations.

Market Reactions

• Example Scenario:
  • May 22nd, Amazon at $185 strike: price appreciation led to trader profit-taking, impacting stock price.
  • Market makers' hedging activities around significant strikes can affect underlying stock volatility.

Conclusion

• Gamma exposure charts provide insight into option market positioning and potential stock price movements.
• Understanding gamma exposure helps identify trading opportunities and profit points.