Dealer Gamma Positioning (Long vs. Short Gamma)
Dealer gamma positioning describes whether option market-makers are net long or net short gamma. Long-gamma dealers hedge against the move (buy dips, sell rips), which dampens volatility. Short-gamma dealers hedge with the move (sell dips, buy rips), which amplifies volatility.
When customers buy more options than they sell at a given set of strikes, dealers are net short those options and therefore short gamma; when customers are net sellers, dealers are long gamma. Because dealers continuously re-hedge to stay delta-neutral, their gamma sign determines the direction of their hedging flow relative to the market.
A long-gamma (positive) book is a stabiliser: dealer hedging leans against price, so ranges compress and headlines get absorbed. A short-gamma (negative) book is an accelerant: dealer hedging leans with price, so a small push can cascade. The transition between the two regimes is often more important than the level of any single day.
This positioning is inferred, not observed directly - it is a proprietary estimate built from options-chain data. It is most reliable as a regime signal (are dealers stabilising or amplifying?) rather than a precise quantity.
Frequently asked
How do you know which way dealers are positioned?
You don't observe it directly - it is estimated from options open interest and flow. Analytics that report dealer positioning are presenting a proprietary estimate, not a confirmed fact.
Why does short-gamma amplify moves?
A short-gamma dealer must buy as price rises and sell as it falls to stay hedged. That hedging flow pushes in the same direction as the move, adding fuel to it.
Related terms
This term is part of a bigger picture: Gamma Exposure, Explained — the complete guide →