Option dealers are still a tailwind, but only barely so
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Picture: Option dealers are still a tailwind, but only barely so
According to Gammalab's gamma model, dealers are still providing minor support for markets according to their delta-hedging requirements.
Above 7,642, market makers are buying futures when prices decline, but below that mark they are forced to sell into weakness and short the market.
This could lead to a sudden increase in volatility in both directions as cyclical selling (or buying) thins out liquidity.
The chart above shows total dealer gamma exposure across the whole chain at each hypothetical price for the underlying, measured in dollars of delta dealers must trade per $1 move. Where the line crosses zero is the gamma flip level. Above it dealers are net long gamma and their hedging works against the move, damping volatility. Below it they are net short gamma and hedge with the move, feeding volatility.