Fundamentals

Delta

How much an option moves for a $1 move in the index, and how many shares it behaves like.

An option is not a share, but it behaves like a fraction of one. Delta is that fraction. A call with 0.30 delta gains about $0.30 when the index gains $1, so it acts like 30 shares; each contract covers 100.

The part that matters: delta is not a constant. Far out of the money, a call has a delta near 0; a $1 move barely touches it. Deep in the money, delta approaches 1 and it tracks the index almost share for share. Everything below is a consequence of that one fact.

Gamma

The rate delta changes as spot moves: the reason a hedge that was right a minute ago is wrong now.

This is the step that usually gets skipped. Delta moves because spot moved. Walk one 7,500 call from spot 7,400 up to 7,600 and nothing about the contract changes, but its delta does: out of the money at 7,400, delta maybe 0.30. At the money at 7,500, delta about 0.50. In the money at 7,600, delta maybe 0.70. Same contract, same day. The index moved and delta moved with it.

Gamma is that second movement: the change in delta per point of spot. High gamma means delta re-prices fast; near-zero gamma means delta barely budges. Gamma is largest for strikes near spot and near expiry, which is why 0DTE at-the-money strikes dominate this board.

Why a dealer is forced to trade

A dealer hedged flat does not stay flat; gamma moves their delta, so they must trade to get back.

A dealer who sells you a 0.30-delta call is short 30 shares of exposure. They buy 30 shares against it. Now they are flat: they make the spread instead of a bet on direction. That is the business.

Then spot moves, and gamma re-prices their delta. The call is now 0.50 delta; they are short 50 shares of exposure holding only 30. To get flat again they must buy 20 more. They did not choose to. Being hedged is what forces it, and the size of the book decides how big the forced trade is.

The direction of that trade is the whole story. Dealers long gamma: spot up, their delta rises, so they sell into the rally; and buy the dips. Their hedging leans against the move, which compresses it. Dealers short gamma: every sign inverts. Spot up and they must buy into strength; spot down and they must sell into weakness. Their hedging leans with the move, which extends it.

GEX · net γ$

The whole book’s gamma priced in dollars of dealer delta per 1% move. Sign says damp or amplify; size says how much has to trade.

One strike’s gamma is a rounding error. GEX adds every strike up and prices it: for each contract, gamma × open interest × 100 (shares per contract), scaled so the answer reads as dollars of dealer delta created by a 1% move in spot.

The sign is the regime. Positive: dealers are net long gamma, their forced trades lean against moves, and you get compression and pinning. Negative: net short, forced trades lean with moves, and trends extend while sell-offs accelerate.

The size is the forced trade, and it is worth reading in contracts rather than billions. $49.65B of net gamma means a 1% move rewrites $49.65B of dealer delta, and re-flattening that is real orders in the real book. Divide by the notional of one E-mini and the number turns into a picture.

One convention to know: calls are counted positive and puts negative; the standard assumption that dealers are long calls and short puts. It is a convention, not an observation. It is most defensible on index options, which is what this board is built for.

Vanna

Delta’s sensitivity to volatility; spot can sit perfectly still and dealers still have to trade, because IV moved.

Gamma is delta’s response to spot. Vanna is delta’s response to implied volatility. Both re-price the same delta, so both force the same hedge; which is why vanna belongs next to gamma and not in a separate dropdown.

When IV rises, out-of-the-money strikes start to look likelier to finish in the money, and their deltas drift up toward 0.50 with spot pinned to the tick. Every dealer holding them now has the wrong hedge and has to re-trade, for a reason that never appeared on the price chart.

This is why a vol crush or a vol spike moves price with no news attached: the vol print alone rewrote the book’s delta. Positive net vanna means a vol pop forces dealer buying; negative means a vol pop forces dealer selling.

Charm

Delta’s sensitivity to time; nothing has to happen at all, the clock alone re-prices the hedge.

Charm is delta decay: the change in delta per day, with spot and vol both frozen.

As expiry closes in, options resolve. An out-of-the-money call runs out of time to get there and its delta bleeds toward 0, so the dealer hedging it unwinds. An in-the-money call converges toward delta 1, so the dealer adds. Neither was triggered by a trade. The clock did it.

Charm is why the last hours of an expiry drift in a direction nobody chose. It is the smallest of the three, and the only one that is fully predictable; the clock’s move is known in advance.

What this board can see

Every number here is computed from open interest: the contracts that exist, not the trades that made them.

Open interest is the book: how many contracts are open at each strike. It settles overnight, so the book you are reading is fixed as of this morning. What updates intraday is the pricing of that book against live spot and live IV; the same contracts, re-valued.

So: we do not observe dealer trades, and we do not know who holds which side of any contract. The regime, the walls, the flip and the forced-trade numbers are what the standard call-positive/put-negative convention implies about that book. They are a model of pressure, not a tape of orders.

That is the honest description of every open-interest exposure product, including the ones that do not print this paragraph. It is worth knowing exactly which claim you are being sold.