Long gamma and short gamma
They are two states the book can be in. In long-gamma, hedging tends to absorb movement. In short-gamma, it tends to extend it. The label describes the book as it stands, not what price will do.
Gamma: how fast the hedge changes
Delta is not fixed. As price moves, delta changes, and gamma is how quickly. Where gamma is large, a small price move changes the hedge by a lot. Whether that hedge tends to lean against the move (selling into rises and buying into dips) or with it depends on whether dealers are estimated to be long or short gamma at that level. Long gamma tends to lean against moves. Short gamma tends to lean with them.
Both words carry a caveat. The positioning is an estimate, and hedging is only one of the flows in the market.
How it reads on a map
- Wall
- A positive strike above price. Dealers sell into rallies there.
- Cushion
- A positive strike below price. Dealers buy the dips there.
- Fuel
- A negative strike. Dealers hedge with the move: they buy rallies and sell dips.
The GEX net total leans the whole day. Positive means hedging leans against moves overall. Negative means it leans with them.
What it does not say
In a simplified book that stays delta-hedged, positive gamma tends to mean selling after a rise and buying after a fall, so the hedging leans against the move. Negative gamma tends to mean buying after a rise and selling after a fall, so the hedging leans with the move. These are conditional directions. They do not prove that dealers hold either book, or that their orders outweigh everyone else's.
So a positive reading means hedging tends to lean against a move, and a negative reading means it tends to lean with it. Neither says up or down.
- Ask what is already happening. A cushion needs a move to absorb. Fuel needs a move to amplify.
- Fuel widens the range of outcomes in both directions. The chart decides which way.
- Read a strongly negative day as a wider range of outcomes, not as a down day.
When it changes
Positioning moves every day. When a level, or the map's net total, changes sign, dealer behaviour switches between cushioning and accelerating.
- Re-check the map before you lean on yesterday's level.
- Compare one map with the next: levels shrink, grow and flip.