LiveGexLevels Guide · Published 2026-11-02

The gamma flip: why does gamma change sign?

Above a certain line, the market tends to brake; below it, it tends to speed up. That line is the gamma flip, where the market makers' total gamma changes sign. It's an estimate, it moves every day and it isn't a switch: it tells you how big the day can be, not which way.

How portfolios protect themselves

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Think of a large fund that owns stocks. What it fears is a crash. So it buys puts below the price: insurance, as we saw with the long put in Options School.

Puts cost money, so many funds pay for them by selling calls above the price: they give up part of the upside, in exchange for the protection. A floor below, a cap above: it's called a collar.

Studies of index options find that end users, on balance, are buyers of options, above all puts below the price. Calls sold above are common too, but less consistently.

A large fund that owns stocks buys puts below the price, the insurance, and sells calls above it, giving up part of the upside. Beside it, the fund at expiry, stocks plus put plus call: a floor at the put, a cap at the call. Below, the note on studies of index options. — A floor below, a cap above: the collar. A drawing, not market quotes.

The other side

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Now look at the other side of those trades. The market maker sold the puts below the price: short options, negative gamma, the accelerator from the last episode, Guide #5.

And he bought the calls above the price: long options, positive gamma, the brake from the episode before, Guide #4.

So, on average, the market makers' gamma is negative below the price, and positive above it.

Market makers' gamma by strike: purple bars, negative, on the strikes below the price, where he sold the puts, the accelerator; gold bars, positive, on the strikes above, where he bought the calls, the brake. — The mirror image: on average, negative gamma below the price, positive above.

The gamma flip

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Now let's add it all up, for every level the index could reach. Far below, the short puts dominate: the total gamma is negative. Far above, the long calls dominate: the total is positive. Somewhere in between, the total crosses zero. That level is the gamma flip.

Above it, the market makers' hedging tends to brake the moves. Below it, it tends to push them.

And remember: it's an estimate. Nobody sees the market makers' books: that's what GEX estimates.

Total gamma for every level the index could reach: negative far below, where the short puts dominate, positive far above, where the long calls dominate. The curve crosses zero at the gamma flip. Note: nobody sees the market makers' books, that's what GEX estimates. — Where the total crosses zero: the gamma flip, an estimate. Illustrative index levels.

The valley and the hilltop

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Here's a way to picture it. Above the flip, the price is like a ball in a valley: push it, and it tends to roll back. Below the flip, it's like a ball on a hilltop: push it, and it tends to keep rolling, either way.

Same market, same day, two different behaviours, depending on which side of the line the price is.

Above the flip, a ball at the bottom of a valley: push it, it tends to roll back. Below the flip, a ball on a hilltop, rolling down one side: push it, it tends to keep rolling, either way. — Same push, two behaviours.

What's special about the flip

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Three things. First, it moves. Every day new positions open, others expire, and the price itself moves: the flip moves with them.

Second, it isn't a switch. We tested it: crossing the flip during the session didn't give us a trade, neither following the cross nor going against it.

Third, what really changes is the size. In our studies, negative gamma came with bigger days, but it didn't tell us the direction. Bigger days, not a direction.

«Our studies» are LiveGexLevels tests on past S&P 500 data: past results are not an indication of future results.

Three points: it moves; it isn't a switch; what changes is the size. Beside them, an illustrative flip shifting day by day, and the range of the day, small above the flip and large below it. — It moves, it isn't a switch, what changes is the size. Illustrative.

Does it change how you trade?

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Many traders say: sell volatility above the flip, buy it below. Here's what the studies say.

SqueezeMetrics, who made the GEX idea popular, found that when gamma is high, the next days tend to move less. Barbon and Buraschi found that negative gamma goes with intraday momentum, and positive gamma with reversals. Baltussen and colleagues found that on short-gamma days the last half hour tends to follow the rest of the day, then partly reverses in the days after. And on zero-day options, Dim, Eraker and Vilkov found that the market makers' gamma is small, and doesn't spread volatility.

Our studies agree on the size, not on the direction: the regime tells you how big, not which way. And selling volatility only in positive gamma looked good on past data, but it wasn't confirmed on new data: so it's not a rule.

What does that leave you, in practice? Below the flip, prepare for bigger days: wider stops, smaller size, and don't take it for granted that a wall will hold. In stressed markets, in our studies, walls did no better than chance.

Above the flip, in theory, positive gamma dampens moves, so walls should hold more often there: the first numbers point that way, but we haven't confirmed it. The flip is a map of how big the day can be, not a signal.

Two boxes. Below the flip: prepare for bigger days, wider stops, smaller size, don't take it for granted that a wall will hold; in stressed markets, in our studies, walls did no better than chance. Above the flip: in theory walls should hold more often; the first numbers point that way, but it isn't confirmed. — The flip: a map of how big the day can be, not a signal.

On the LiveGexLevels page

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On the LiveGexLevels page, the flip is a line on the chart, next to the walls, and the regime, positive or negative gamma, is shown next to the price.

Before the open, one look at which side of the flip the price is on tells you how big a day to prepare for.

An illustrative chart: the price swinging between the upper wall and the flip line, with a γ+ badge next to it, labelled «price above the flip: positive gamma». Beside it: before the open, which side of the flip? How big a day to prepare for. — The flip on the chart, the regime by the price. An illustrative chart.

In brief

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Large portfolios buy puts below the price, and many sell calls above it.
The market makers hold the other side: negative gamma below, positive gamma above.
Where the total changes sign is the gamma flip, an estimate: above it, the hedging tends to brake; below it, to push.
It moves every day, it isn't a switch, and it tells you how big, not which way.

Sources

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