Gamma Trading: The Edge Market Makers Wished You Didn't Know

There's a concept every single Wall Street trader knows by heart: gamma. And it's responsible for causing huge moves like the GameStop rally back in 2020, which blew out institutions, to even more recent rallies that have broken historical records. And yet, despite how important this concept is, many retail traders have not learned it. Likely because many think it's too complicated or not necessary to their trading system. And oh boy, is that a mistake.

Because over the last few years, gamma's influence over the market has been exponentially growing. So much so that in 2026, it almost entirely controls the market's movements. And that's why in this ultimate guide to gamma, I'm going to show you how you can abuse gamma's control over the market and take advantage of high-edge trading opportunities every single day. And whether you're just starting out with what even is gamma, or you're trying to achieve mastery, this video is for you because I plan to leave no stone unturned from what even is gamma, how it's practical to trading, how to draw gamma levels, the trading strategies that I've deployed at a professional level in my career so far, and other crazy little bits of information I don't think is out there publicly.

Last time I did one of these guides, over 100,000 of you enjoyed it. Thank you so much for that. And if you think this guide is way better than that one, please drop a like. It really means a lot.

So, what is gamma? Well, simply put, gamma is an options Greek. In options Greek, that phrase is used to describe a basket of terms that we know to either contribute to the price of an option or that measures the price of an option. There are two types of option Greeks. There are first-order Greeks like delta and theta, which directly contribute to the pricing of an option. And then there's second-order Greeks. Gamma is a second-order Greek. All second-order Greeks are are measurements of first-order Greeks. Gamma specifically measures the acceleration of delta. And remember, delta is just how much is the price of a contract moving as the stock moves. So, stock goes up $1, how much is that options contract going to change in price? Well, gamma is reflecting that acceleration because it's not linear. As delta goes up, up, up, it's accelerating towards at-the-money. It's exponential. And gamma is going to show that it's saying, "Hey, look, this is accelerating. Here's peak acceleration at-the-money." And so you can see gamma is starting to slow down as that contract goes in-the-money. The key takeaway here is gamma is the acceleration of delta and it's a measurement.

But how is this actually useful to your trading and why am I even telling you this? I mean, I'm certainly not loading up my brokerage and staring at gamma or option Greek numbers all day. No, instead, where this becomes useful is if we are able to put ourselves in the shoes of one special type of entity: the market makers. You know, the people most affected by these option Greeks and actually move the market as a result. Market makers are entities that provide liquidity, meaning any transaction that's out there, whether it's a DGEN trying to fool port into SpaceX, or it's your grandma adding to her McDonald's position, the market makers are willing participants to take the other end of that deal to make things more liquid. They play a non-directional game, meaning no matter what transaction comes in, they're not thinking about, "Well, I think the stock's going to go up." They don't care. They're there to be balanced to just provide liquidity. The more transactions they get, the more money they make. But see, that's the tricky part. How do you take so many orders on and still remain balanced without blowing up?

The ways that market makers remain balanced do differ between different markets. However, none are as impactful in 2026 than understanding option market makers, as the special way that they remain balanced in the markets ends up moving them entirely. I have talked about this extensively on my channel and social media before, but options move the underlying stock. See, when option market makers take on an option, their best way to remain balanced and hedge that risk that they've taken is to go out and buy or sell the underlying stock of that option. But how much they go out and buy or sell of the underlying equity dependent on the contract that they hold is ultimately reliant on the option Greeks. See, market makers are referring to the option Greeks to model how much of the underlying they need to remain balanced with this massive inventory of options that they are providing liquidity for. The option Greek that their positioning is most vulnerable to is delta. Delta is the number they're focusing on the most because it tells them at that point in time how many shares they're supposed to be hedged to remain balanced. Let's say a market maker sold you a call and it was a 30 delta. Well, the market maker would then go out into the market and immediately buy 30 shares to remain balanced. But we know markets move, and so do the option Greeks, and thus the delta that the market makers are trying so hard to maintain balance through. So what market makers go and do is they use other option Greeks to better model how the movement in the market is going to change their delta, which they so desperately need to be in balance with. And remember how I said that second-order Greeks are all measurements of first-order Greeks? Well, that's what market makers refer to. They refer to the second-order Greeks, and none is as important as gamma. Remember, that is the rate of change of delta. As that market shifts up or down, that delta is going to change. And so market makers refer to gamma to know exactly how much that rate of change is so that they can adjust their hedging accordingly to match the delta they need to to remain balanced and stay in business as liquidity providers.

Now, what I just told you used to be useless to know as a trader because before 1973, the option volumes were extremely low. No one really knew how to accurately price options, and there was no real market makers in the space. However, in 1973, when the Black-Scholes model was released, which was a systematic and highly accurate way to price options, as well as that year also the first options exchange actually released, you had this massive volume explosion. Not only were the options more liquid and more tradable than ever, but we encountered a bunch of economic crises along the way that investors saw options becoming more and more attractive. And since then, you can see from this graph here, option volumes have absolutely exploded, growing exponentially year after year after year. And even in 2026, we're set to set another huge blowout year of option volumes. Well, with all those options being traded, who's warehousing all of that risk? Who's taking on all of that risk of us participants going and getting those options? Well, as we talked about, the market maker is. And as a result of exploding option volumes, guess what is also exploding? Market maker hedging, which is buying or selling the underlying stock of that option. Do you see it now? Because option volumes have exploded so much and become such a big percentage of daily volume across the markets, a new regime has started. One where option market makers' hedging activity is becoming one of the biggest forces driving day-to-day price action across the entire market.

But hang on a second. How do we turn this concept into actionable edge? Well, but the first step is identifying market maker positioning. If we, in theory, know their positioning, then we can easily map out what they're going to do where, because that's what they have to do to achieve balance. And if they don't, they risk blowing up. And we know they're not going to do that. The most effective and simple way to view market maker positioning is through a tool called a net gamma chart. But before we look into this and how to interpret it, we first have to understand what types of positioning market makers can even be in. For those that are unfamiliar with options, this may be a little confusing to you, but it's really simple. Market makers can be in two different types of positioning across calls and puts. If the public, like me and you, want to go and buy options, well, the market maker is taking the other end of that. He's supplying us the liquidity. And so therefore, he's selling us the calls. And that is known as a market maker being short the option because he has an infinite loss capability, um, and it's almost betting against the payout of that option. Whereas right here we have market maker long. If me and you go out and sell an option to open, the market maker who is providing liquidity to the market is going to buy that call from us. He's taking the other end of that, and that, as a result, he is going to be long the option. Now, the biggest takeaway here from a market-making perspective are these are two different types of exposures for him. And because they're two different types of exposures, they require two different methods of hedging, of remaining balanced. And so they're looking at gamma differently and have to attack it differently.

The first one, when the market maker buys options from participants, which is the market maker going long the options right over here, he creates a positive gamma environment for the market. As the stock increases, the delta will increase of the market maker, and therefore he must sell equity, sell his hedges, as the stock goes higher in a positive gamma environment. Likewise, when a stock decreases in a positive gamma environment, the delta decreases, and therefore the market maker must buy equity as it goes lower. And what you can see by these arrows here, ultimately what happens is it starts to kind of chop the market around or it compresses the market range because as it goes higher, market maker is selling against it, forcing it down, and then when it goes lower, he's buying it, forcing it back higher. So it kind of creates this equilibrium or tighter range in the market.

The second environment is negative gamma. And this negative gamma is from when a market maker sells options to participants, or aka when the market maker is short options, either a call or a put. Whenever the stock starts to decrease in a negative gamma environment, the delta increases, and therefore as a stock or market goes down, the market maker must continue to sell shares lower. He has to keep pushing the stock lower with the direction of the stock, and it creates kind of this feedback loop of where the market maker has to sell lower, and because it goes down from him selling lower to adjust his hedges, it can keep going lower. Likewise, the stock increasing, the delta decreases, and therefore the market maker must continue to buy shares as it goes higher. So what's actually happening, and the biggest difference between the two environments is in negative gamma, the market maker is hedging in the direction of the stock moving. So if a stock goes down, he has to continue selling lower or pushing it lower. And as it starts to rebound, he has to buy with the trend and continue to buy higher. Versus positive gamma, he's doing the opposite because he is long a lot of options versus short down here. He has to trim his hedges as it goes higher. So he's selling equity against his position, and that forces the stock down from it previously bouncing. But as it starts to drop in positive gamma, he's going to have to buy, which also bounces it up.

So, coming back to a gamma chart, we can see how this concept applies. Looking at the gamma chart, there's a few different important things you need to know. First of all, you'll see bars heading down and bars heading up above positive and negative. These are reflecting whether it is a net negative level or a net positive level. And these values are calculated from open interest data, not option volume, but open interest data, which is how many contracts are being held on a strike. This is public information and again, the market makers' positioning. And so you can see down here, the 740 is net negative $600 million, and that is going to be a negative gamma level, and it's the biggest on the chart. What you'll also notice is this level right here, which is the JEX flip. This is simply the divider between a negative gamma environment and a positive gamma environment, which again has different implications. And if we actually go to the market, you can see the action of the market is very choppy. Tighter ranges, more of a grind. And you can see because again, as they push higher, market maker is selling into that, and as it goes lower, he's buying into that. So naturally, if his action of hedging looks like this, then the market's going to try to cram itself in an area of equilibrium the entire time because it can't really go anywhere else. And you can see that super tight line that goes through there. However, in a negative gamma environment, when we cross over to that negative gamma, you can see how all of a sudden the volatility, the ranges of the market explode higher when we're below that JEX flip level because again, the market maker is buying as it goes higher and selling as it goes lower, which amplifies the directional move.

Now, drawing gamma levels on your chart is pretty straightforward. The bigger the level, the more important, and the theoretically stronger that reaction around it will be. As well as if it's a JEX flip, that's going to be a very important level 100% of the time because when you flip from positive to negative gamma or vice versa, there is a physical character change in the market. The dynamics of how the market will trade actually differs. So, if I were to be looking at a chart like SPY or S&P, I would look here and I would go to the JEX flip, which is right here at 752.25. And I would go to my chart and just simply draw a line at 725.225, which is right around here. Below this, you expect negative gamma, wider swings, bigger ranges, as you see here. And above this, you expect positive gamma, which is those tighter ranges and very close intraday price action. The biggest negative gamma level, the biggest positive gamma level, and the JEX flip are almost always on my chart at all times, acting as active resistance, support, and characteristic change levels.

Now, there are thousands of optionable stocks in the market, and drawing JEX flips on every single thing you trade is going to be confusing and complex, but we don't have to make it complex. So, what I do to get around that kind of problem is I just reference the S&P 500 complex, either S&P or SPY. Why? Well, look at this chart right here. This shows the dollar amount of delta expiring on a past expiration that I found in my camera roll from a chart via Spot Gamma. And you can see here, the S&P 500 completely dominates the rest of the market in market maker options positioning. And because everything is tied to S&P 500, this is the most important thing to draw the JEX flips and gamma levels on because everything else will kind of follow.

After I've drawn these levels out on the S&P 500, either SPY or S&P, I will then go and look at whether the market is in positive or negative gamma. And based on whether it's positive or negative gamma environment, there are different broad assumptions we can make in each environment that focus around the different methods of hedging that a market maker is deploying in each.

Starting with positive gamma, the first assumption we can make is that in general, markets are more stable in a positive gamma environment. Because market makers are buying dips and selling into pops, markets become more liquid. This makes it harder to actually drop the markets, providing a more rigid structure for markets to continue higher. The second assumption we can make in a positive gamma environment is that because of the smaller ranges, we do not want to trade ETFs, SPY, S&P, anything of the index complex. We want to focus on individual tickers, as these have higher potential to move. Why? Well, when indices ranges compress because of the market makers selling into pops and buying into dips, it pushes flows in investors' minds to other parts of the market that are actually starting to move. The kind of psychological root of that is when markets feel stable, market participants feel more okay and emotionally happy to go and pick their own stocks, boosting volatility and the potential to gain in other sectors and individual holdings. So, we do not want to trade any ETF or index during a positive gamma environment. If we do, we're underperforming. The third assumption of a positive gamma environment is the trade that it most rewards. And that is daily breakouts. While other trades do sometimes work, the biggest focus for me as a professional trader is daily breakouts during positive gamma environments, as that is where the biggest move potential is, especially after the market just experienced some hardship and is now turning back into positive gamma. You will often see daily breakouts really start to shine. We saw this after April this year when the Trump and Iran ceasefire occurred. Everything, I mean everything, was breaking out after achieving positive gamma again.

Moving on to negative gamma. The first assumption we can make is that markets are less stable and inherently more violent. If you have ever heard the phrase, "The market takes the staircase up and the elevator down," that is partially due to positive and negative gamma. They walk up slowly because of positive gamma and they absolutely puke down because of negative gamma. The reason negative gamma environments are so unstable is because what happens is, let's say you're in a negative gamma environment and the market starts to go down. Well, referencing back to our graph here, the market maker who is short a lot of the options in a negative gamma environment, again, that's what creates that, is the market maker has to sell equity as it goes lower. Well, the market goes a little bit lower. The market maker has to sell equity because it went lower. And because he's selling so much equity as it's going lower, well, guess what? He pushes the market lower as a result, which again makes him have to sell more equity, which again makes the market go down. So, it's a death spiral. It goes until it doesn't. It literally will keep going down super fast, super hard until there's just no more sellers and the market then steps in, buys enough, and the market maker is now buying up and higher with the trend. So, that is what makes it inherently less stable is because there's this death spiral infinite feedback loop potential. We call this a reflexive cycle.

The second assumption in negative gamma is we actually do want to trade indexes because in negative gamma environments, the movement relative to market cap is so much bigger than a lot of individual stocks. In negative gamma environments, you can see a negative -2 or negative -3% day on SPX, which doesn't sound like a bunch, but when you take into account how much in dollar amount that is, it means that the biggest assets are now in play because they're moving more as a percentage of their market cap. And that doesn't happen often, and that can reward an insane amount, especially with options in negative gamma environments. Those can have huge payouts. And the third assumption of negative gamma is the trade that it often rewards the most are daily breakdowns and range trading, volatility trading. You will see a ton of reversals up, down, all around. And as a professional trader, those two trades are really my core focus.

And now that you have a solid base of what gamma is and what it means to the markets in 2026, we can talk about the three distinct strategies that I have built over my professional career so far. The first one is a JEX flip strategy that focuses on when markets flip from positive gamma to negative gamma and the massive market consequences that can create in the right scenarios. The second is known as option volume imbalance and is a distinct tool that I've built to capture a nuance in an edge that I haven't quite hit on yet. The final strategy is actually a reversal trade that looks to take advantage of the highest gamma reading names in the market ahead of an expiration. All three are rigorously backtested and built upon truths in the market. So, let's talk about them.

The JEX flip strategy is quite simple and straightforward. You want to be looking for an extended rally in the market that has been in positive gamma for a while, whether it be 10, 20, 30 days, even sometimes in the most extreme cases. Eventually, you will see the markets go into negative gamma for the first time. And the key here is the first time. Once you see a first-time close under negative gamma, whether it be in the pre-market or after hours or even intraday, you want to be looking to deploy this playbook, especially if it's a pre-market gap down below negative gamma. Those are my favorite. When it does gap down into negative gamma, as we discussed, behaviors of the market change, and if it's the first time in the last 20 or so days, then you can often see a more violent period of selling. This is where you have the highest potential to waterfall in the market. So if you look at SPY, one of the best examples here was on June 5th. On June 5th, we had the first close under negative gamma or in negative gamma in weeks, at least from the extended rally period. You can see right here at the time, the JEX flip was right here, and yes, this was after-hours action, but we opened and just instantly reclaimed. But here we opened down and we couldn't reclaim before the open. And this was super interesting to me, and we actually had a catalyst backing it. And so what the playbook here is, you're looking for two distinct trades. Whenever this happens, you have two distinct trades that I try to look for. The first one is an opening drive short. Now, what does that mean? It's often going to come in the form of an ORB or an opening range break or some sort of pre-market low break, or you see some sort of first move up then break low of day, right? And that's kind of on the same, uh, kind of idea of an ORB. So whenever you see this happen, and again, this is after an extended positive period rally for the first day going into negative gamma, probably the best case scenarios, you want to be having a news catalyst. Sometimes this happens just regardless, though. In this case, on June 5th, it was just a good jobs number, um, that caused this sell-off. So it doesn't even have to be bad news, but any news. And you can see right here, a reason to sell here. Came down, made a pre-market low, and then you opened, little first move up, but then you broke that morning range or that pre-market low. That is the first trade I'm looking for in this environment because again, market maker is now in a different attitude. He's willing to short lows, he's willing to press lower, and that creates this kind of move expectancy.

The second trade that I look for in an environment like this is called an afternoon roll. After the first move down in this environment, what you will often see is a bounce higher, whether it go, you know, close to the, you know, close to the opening price or even above it. So long as that bounce is below the JEX level and it's still a negative gamma into the afternoon, I will be looking for a rollover into the end of the day. Now, on this day, June 5th, the best example of this was actually SOXL, and you can actually go back in the days. I will show a few more in this video of when the markets flipped from positive to negative gamma for the first time in a while, this kind of structure forming. So here you can see right here, we had a first move lower on SOXL, which was the biggest kind of movers at the time on this day, and first move down, and then in the afternoon, you start to chop, and right around 11 p.m., you start to break down. The afternoon roll, when it's chopping and holding up into some sort of range into 11 to 1 p.m., that is where I'm looking to short or go long put options with shorter expiration because oftentimes puts will decay an enormous amount here, and the risk-to-reward is massive. But if you do short equity or do short, uh, the underlying here, that is what I'm looking to do. So again, the two trades with this JEX waterfall strategy is I'm looking for an opening short, whether it be an ORB break, an opening range break, or a pre-market low break. And then I'm also looking to short after a bounce and a chop. So I'm shorting into that chop and I'm trying, so long as it's under the JEX level, and I'm trying to catch that midday roll. That is called the afternoon roll. So again, to recite the variables, you want five to 20 days of consecutive positive gamma closes in the indexes, and then the first negative gamma open, preferably. You want to see a first move down, and then the roll coming into the afternoon between 11 and 1 p.m. I'm shorting in the chop and trying to catch a leg lower through low of day.

Now, you might be asking, what happens if this does occur intraday? Well, it's the same kind of premise, except this time you're looking for it to, let's say the JEX level was down here. Depending on what time of day it is, you may just be trying to short through the JEX level or some sort of hold under the JEX level. That would be the trade there. But the best case scenarios again is when it opens under negative gamma for the first time. Here's another example. On the 25th, we have QQQ here, opening under negative gamma for the first time in several days, several weeks even. And you can see the opening print short trade I'm trying to take is that pre-market low break. Once it starts to bounce into the afternoon between 11 and 1 p.m., I'm looking to try to short that roll to catch some sort of rollover. And that's the afternoon roll. And again, so long as it's under the JEX flip, this trade is valid. If it were to chop above the JEX flip, it is no longer valid, and I would not be looking to take this trade.

The second strategy, and probably the most important that I deploy at a professional level, is focused around the option volume imbalance tool. A tool that I've made to solve one of the only downsides to gamma, and that is that it's based on open interest and not volume. See, if we want to view market maker positioning, traditionally we have to go and look at open interest, which is public information and it's how many contracts are being held at a specific area. The biggest downside to open interest is it only updates the following day. It is not real-time. Only option volume is real-time. That means modeling the market maker's positioning and therefore impact on the market has been glued to a day-old data. It's not taking into account real-time option flows. In an attempt to patch this hole, the industry has come out with things like Unusual Whales or Black Box Stocks and trying to publish individual flow orders. But the problem with this is there's so much volume now in this market of options that it's nearly impossible to determine the importance of individual orders alone. Well, most of the time, using open interest is not a problem. For example, on the major indices like SPY or S&P, the position doesn't actually change that much on a day-to-day basis as far as what the major levels are. However, what if there's breaking news or there's a stock that's breaking a super key level all of a sudden? Well, then that's when you would want a tool like the option volume imbalance tool that can model in real-time based off live flows the market maker's new obligations to the incoming orders and thus the price impact. I'll break this tool down further, but here's really what this tool focuses on. So again, gamma is based around open interest, which is majority of the time fine, but again, what happens if there's like breaking news or there's a stock-specific setup like a breakout that sets up intraday? Well, you'd want to be able to see the flows in real-time and see if these orders are going to create that environment to support a big breakout. And well, the OVI tool solves this.

So how the OVI tool actually works is all the flows in the markets from calls, puts, everything, you name it, they come into a bucket. And from that bucket, I split it out into calls and puts. And based on those calls or puts and their impact on the market maker gamma, I'm assigning them a score. So it's a proprietary calculation based off their impact of, of how is this order likely to push price. The bigger the theoretical price impact, again focused around the gamma creation for the market maker, is what gives it a higher score. And then from there, I'm creating a ratio known as option volume imbalance of those weighted calls, all those weighted calls, and all those weighted puts. Then I'm taking that calculation and just ranking it against historical flows. This is super important because you're taking a reading and you're putting it into context of how impactful are these flows now? Are they historically significant? So that I'm not reading too much into something that's not actually a signal or important. One takeaway you get is that the higher the OVI score, theoretically, the higher price impact those flows are from a market-making perspective.

So, let's take a look at an example. Nvidia. Nvidia right here on 4/24. In the morning, there was a pretty big level. It was 205, 204. And if we actually go back to 4/24 on a chart, you'll see kind of how significant this level was in play. So, right here was 4/24. You can see this super tight consolidation, and we were looking for some sort of breakout to go to all-time highs at the time. And so right as you start to wind up tighter and tighter against 204, all of a sudden you had a big OVI print. Now you can see the OVI here is marked by these dots, and they're ranked as a percentile versus historical readings over here and also over here. You can see P90, P80. Any dot above that is in the 80th percentile or above, 90th percentile and above. So you can see right here, this was the highest OVI reading in the last year for OVI on this time frame. And so this is super significant because that is telling you that the flows there are the highest quality from a price impact standpoint in the last year based off the calculations I just showed you. However, we also want to take into account that you can have a high-quality ratio of weighted calls versus puts, but you still need high quantity. So, OVI scores the quality of the flows. Down here, you will see the quantity, and in the best breakouts, you will have the highest quantity and the highest quality flows paired together. You need quantity because quantity is ultimately that dollar amount that is going to make the market maker hedge and rebalance an absurd amount of flows. Remember, it is a ratio ultimately of what I'm calculating here. You could have 10 calls and one put and it be a high OVI reading. But to pair a 10:1 ratio with super high call volumes is a very rare signal. Breaking out super high OVI print long here as it breaks out because the flows are supporting it. The live option volumes are telling you that market makers are going to have to continue to hedge in the direction of this aggressively based off the quantity and the quality. And you can see that as those flows sustained in real-time, it wasn't until they started to capitulate here with the highest and then they dwindled after that that momentum died because there was no really supporting flows. You were able to see where that momentum was going to die. And you can see the information skew here is pretty big from traditional price and volume. Aside from just a level break, you are unable to gauge how significant this level actually is. How significant this move actually is. Is it actually being supported? You didn't even have high day equity volume here. And as you were sustaining, even after you got an early signal to when the top would be because the flows completely fell off while the volume in the equity still sustained. So, you're getting these signals you otherwise wouldn't from traditional price and volume. On my platform, there's a PDF and a tutorial that goes deeper into how this concept actually works and the specific trade setups I look for on this. There are across this entire tool, five setups that I actually look for, and this PDF goes into depth with examples more of how I spot them and the variables necessary to give a valid signal. Here's another breakout setup on ICLN, uh, back in 4/23, the day before. You can see right here that in the morning, there was just some kind of chop, and then as we go through high of day, you can see that the option volumes just absolutely skyrocket, and they sustain in the 100th percentile and 97th percentile for the last reading of on the 5-minute. This is huge. This means it's the highest ranking flows in the last year, and you can see it just dwarfs anything you've seen in the days before. The quantity of the flows were super high. But again, the OVI percentile being in the 100th percent means the quality or the expected price impact based off how the market maker is going to react in real-time is also very high, supporting price. And again, as flows start to diminish, so will the momentum because while the market makers now have less of a reason to push it as aggressively based off the flows not being as strong and the gamma change being less.

The third and final strategy I look to deploy as a professional trader that centers around gamma is actually a strategy that focuses on gamma's relationship with time. See, there's really two things in the market that change the option Greeks, and that is direction change in the underlying, but also the passage of time. And that makes sense, right? If you pay for a contract that expires in six months, we can't expect it to have a 100% gain after a $1 move versus a stock which you buy the same day contracts and it has a $1 move. That makes sense, right? The expectancy of the move is going to be much more and therefore change less with longer-dated contracts. And we can see this perfectly on this chart right here: gamma versus time. You can see six months out, any change in gamma, you know, a $5 change in the underlying stock here is going to be very minimal in the change it has over here. But if you have a shorter-dated contract like one month, it's much more, uh, crescent. It's not as smooth here. And what you can see here is a $5 move dramatically changes that value of gamma much more. And so the takeaway here is that well, heading into an expiration, if we think about market makers and their positioning, you know, naturally we can come to some sort of conclusion, and that is heading into an expiration, well, number one, their gamma is getting much bigger, and what that means is with each dollar move in the underlying, you know, right or left, their change in gamma is going to be much more dramatic, meaning they're going to have to hedge much more dramatically, they're going to have to remain balanced much more dramatically, which you learned throughout this video means means they're going to be buying or selling equity much more aggressively, and that can work in the favor of a directional stock movement or against. Why? Because well, in a market that is competitive or maybe balanced, that can work out to, well, all of a sudden the market maker is just pinning the stock into the expiration because, you know, if the delta, if the gamma gets so sensitive, then any way which the market is pushed, he's going to have to hedge an insane amount. So any little drop, he has to sell a lot, and then any buyer, he has to buy a ton, and so what it does is it just kind of puts two big weights on the top and bottom of a stock to where it can't move. However, the other end of that is that well, if there is a big move that starts to occur, then that can create a massive waterfall because he is so sensitive in his gamma that if something snaps, if something breaks, if the reason some sort of option position was built collapses, it could really collapse and cause the market maker to hedge a significant amount. And so we can take that knowledge and apply it to one type of setup in particular, which is daily overextensions or daily overextension longs, shorts, or what we call kind of like capitulation trades, uh, in these trades where the movement of the underlying is so detached from fundamentals, so detached from reality. And I'm not talking about, "Oh, you think a stock's overvalued." I'm talking about something like Silver back in January when it was going absolutely insane, uh, something like CAR when that was moving back in March, just making a stupid move, 700% on nothing. Uh, then you also had, for example, MSTR in 2024, making a stupidly unsustainable move. Whenever these unsustainable moves happen, something like UNH, even where it just made this massive liquidation, these unsustainable moves, they often bottom 70% plus, 73% of the time, exactly from my research, on a Thursday or Friday. Now, that's interesting because every stock in the market, at least the major ones, have Friday expiration. So, they bottom typically right on or right before the options expirations. And so that's something to consider. And so how I deploy this knowledge practically is when I'm looking at overextension trades, something like CAR, I will put more emphasis on, uh, you know, a name topping on a Thursday or Friday. And when I see those variables coming into an options expiration, that's when I want to be pressing size. I don't necessarily save it. I don't say, "Oh, I'm only going to do it on a Thursday." But when I see something like CAR or even UNH, when you see that massive gap down, the biggest gap in the entire trend almost at these prices with that much volume, that is a sign that this is likely going to be the bottom. It's on a Thursday. It's coming into options expiration. You had a capitulation. You had unsustainable price action. You had everything there to signal an overextension trade, which again is a different trading strategy in itself. But the fact that it was on a Thursday and into a Friday gives you a lot more confidence that you have the mechanics of the market on your side. Now, what are some things to look out for with this? Of course, you want a stock with ultra-high implied volatility. A stock that has unprecedented option demand. High implied volatility is a symptom of unprecedented option demand. You know, something like Silver, something that completely detaches, that's when you want to be, uh, looking out for that. And you can see also Silver here topping on a Thursday and into a Friday. That kind of knowledge here. So again, 70% of the time from my examples, which is over 25, um, which is statistically significant, going to see these, um, top on a Thursday or Friday later into the week into the option expiration. And again, that had it revolves around those mechanics of, well, you know, it's likely to not do anything into an expiration for most things because the weight of that gamma is going to just trap it. But but in the case where you do see those variables set up, it can cause these massive waterfall moves that you otherwise wouldn't be able to get on like a Monday or a Tuesday.

And the use of gamma's relationship with time extends beyond just overextension trades. You know, when we look at something like CAR, this move was built entirely on thin air, entirely on just mechanics of positioning, people piling into calls, people driving up the market, causing the market maker to hedge, just pure mania. Well, of course, when you come into an options expiration and market makers are starting to have to rebalance, that's going to trigger these massive collapses, but we can't have the same expectation for the overall market for, you know, real companies, real stocks, real ETFs, real indices. And so, we can deploy a very similar kind of structure, but, uh, more of what I call an options expiration cycle. And this is just a basic time cycle or basic concept of understanding that into expirations, we expect different characteristics from the market. Now, don't confuse this with positive gamma or negative gamma. But understand that in general, and one of my goats, uh, Jim Carson, talks about this a lot, that options expirations mark pivot levels in the market. They often are, you know, are character changes where very shortly before, very shortly after, you see some sort of character change in the market because what happens is you have such a big clear out of positioning that, well, markets are then freed up afterwards or right before. And in the last quarterly options expiration, this had about $8.5 trillion in notional value, which is insane, um, on the SPDR complex. And that's just absurd, right? That's an absurd amount of notional value. And, um, that can do certain things to stock. So what is my general approach with this idea? Well, what I do is I go out and I map the quarterly options expirations, and I do, uh, you know, again, that's the third Friday of four months of the year, being March, June, September, December. And of those, I do 14 calendar days before and 30 calendar days before. Heading into an options expiration, you're going to have these kind of two weeks before and, you know, 30 days before these bigger swings in gamma. Um, and that's just naturally because of how the position works. And the characteristics are this first phase, known as the kind of shakeout period, is where you often see more trendy price action where oftentimes trend will be more friendly, that, uh, there's actually a real directional move. And heading into the OPEX during this, what I call max pain phase, you can expect more volatility, more of a reversal, more of a kind of back-and-forth action. Um, and that's exactly what you can see here in this. You had much more trend and chop here. Here it's not so clear. Markets were going sideways forever, and so you're not necessarily always going to get a clear signal, but here's down, and then you kind of had these bigger, more volatile swings to the downside here. Um, even if we go to something like, let's say, last March in 2025, uh, you can see here, more trendy price action, and then all of a sudden, two weeks before, just complete sideways. So it changes our expectations of how we can expect markets to trade just a little bit. Don't be shocked, but don't overlean into this concept. You know, I don't wake up every day and go, uh, you know, "Oh my gosh, oh my gosh, it's going to go sideways. It has to go sideways." No, I'm very open to anything happening, but I'm understanding that into an expiration, we can very well expect a pin. And so, if I'm going to be, you know, trading a market and I start to see it go sideways like this with no news, then I'm just going to be like, "Okay, it's likely to keep going sideways." And I'm not, you know, I'm willing to change my mind. But that's going to help gauge and ground me in reality of, you know, if I'm going to expect some sort of move to the downside based off this action, I might as well wait till after the expiration clears, all that money clears out, repositioning starts, and then catch that further trend after. So again, just understanding that volatility typically compresses into an expiration. Um, and we can see that in real time here. That's how I apply it to the overall indices in the market.

There are so many different ways that we can use this concept of gamma to exploit the market and take advantage of little and big edges alike that are present as a result of it. There's some that even I am still learning about and taking advantage of. For example, recently the SpaceX IPO, the exact day options were finally made public to be able to trade was the day that the stock topped. Now, hopefully from this video you understand why SpaceX from its IPO, everyone in their mom was buying SpaceX. It was up, up, up over 50% [music] into the day that options were finally being able to be traded. And because it was up so much into such a day, hedge funds and money managers saw this massive gain and want to hedge the downside. They're up so much, it's worth buying a little bit of insurance because if this stock does roll over, it could roll over hard. Well, in that thinking, they actually consequently helped cause the top because on the day the options were being able to be traded, a lot of people in the morning were buying calls, but into the afternoon and further, they were buying a lot of puts. And because there was that put buying in that day and the day to follow, market makers have to sell equity to hedge as it goes lower. And because the bid is just not there, the stock can't really rebid at all. The market maker just has to keep selling lower and lower and lower, which causes the to just keep selling off. And this is something I'm going to look to deploy on future IPOs that make big run-ups into the day options are being able to be listed.

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