hey Traders gav mcmas here from options trading IQ doing a video collaboration with barchart and today you're going to learn how to unlock the power of gamma exposure to boost your options trading before we get started just a quick reminder that everything discussed is for educational purposes only is gener in nature and does not take into account your financial circumstances so Bart recently released three new charts that can be helpful for option Traders they are the expected move gamma exposure and volatility term structure some really cool new features these charts are available for all members however customization on the gamma exposure and volatility term structure charts are available only for bar chart Premier members in this video we'll break down of the new gamma exposure chart first a quick lesson on gamma so gamma is a measure of how much an options Delta changes with a $1 move in the underlying stock price think of Delta as the speed at which the option price changes while gamma represents the acceleration of that change for example if an option has a Delta of 0. 5 and a gamma of 0. 1 a $1 increase in the underlying stock price would increase the Delta from 0.
5 to 0. 6 long options always have positive gamma and short options have negative gamma positive gamma positions benefit from large price moves while negative gamma positions benefit from small price moves that's all well good but why is gamma important well we can get something called a gamma squeeze and some of you may remember this from back in 2021 which was the GameStop gamma squeeze and it was one of the most dramatic events in recent stock market history as retail Traders bought large quantities of out ofthe money call options market makers had to hedge their Risk by buying shares of GameStop as call buying increased market makers had to purchase even more shares to maintain their hedge creating a feedback Loop that drove the stock 1700% higher at its peak you can see that pretty dramatic move there on the chart anyone that was trading during that time uh will remember that very well it was a crazy crazy time this gamma squeeze led to significant losses for hedge funds with short positions particularly Melvin Capital which required a multi-billion dollar bailout we can now monitor gammer exposure for any stock on barchart. com and potentially spot situations like this before they occur gamma exposure or gex highlights important price levels where there is significant gamma based on Market positioning in open interest these elevated values reflect where market makers may need to hedge to mitigate their risk offering important levels of support and resistance gam exposure levels are always positive for call options and negative for put options they're generally the highest around the price of the underlying when the option contract is closer to expiration and you can see that here with we've got an example of Amazon and we've got some positive gamma at the 185 190 195 strikes all around the near the money and on the main fiveo strikes the gamma exposure by strike highlights strike prices across expiration dates with the highest gamma exposure net gamma exposure reflects the difference in call and put gamma for the strike across selected expiration dates so you can see here we've got the positive gamma for calls in the blue and the negative gamma for the puts in yellow and we can see here for Amazon that overall there's a lot of positive gamma the blue bars are a lot bigger than the yellow bars a positive gex or gamma implies that market makers will hedge their positions resulting in low overall volatility by buying when the market drops and selling when the market Rises and negative gex implies higher volatility as the market maker will need to sell when the market drops and buy when the market Rises so when we get Negative gamma negative gamma exposure we can get that feedback loop that we saw on GameStop where as the stock continues higher the market makers have to keep buying the underlying stock to hedge likewise if the stock drops they need to keep selling to maintain their hedge so it can create a feedback loop let's look at two current examples to illustrate the point so here we're looking at the gamma exposure for Amazon so just over at barchart.
