Gamma exposure (GEX)
An estimate of how many dollars of stock option dealers must trade for each 1% move, from the open interest.
Dealers who sold options hedge by trading the underlying. Where they hold net positive gamma they sell rallies and buy dips, which damps moves; net negative gamma forces them to chase the price.
Formula
GEX = Γ × Open interest × 100 × Price² × 0.01
Inputs
- Γ. Black-Scholes gamma of the contract.
- 100. Shares per contract.
- Price² × 0.01. Converts to dollars per 1% move.
How to use it
Anticipates whether dealer hedging is likely to damp moves or amplify them.
Limitations
Rests on an assumption about who holds what; open interest has no sign.
In Kereon
Options. Black-Scholes gamma at each contract's vendor IV, a 4% risk-free rate (adjustable on the page) and no dividends. Calls count positive and puts negative, under the standard assumption that dealers are long calls and short puts — an assumption, since open interest carries no sign.
Also called: gamma exposure, gex, net gex, net gamma.