$SPY
How to actually USE GAMMA (GEX) TO TRADE
How Gamma Above and Below Price Can Influence Price
The yellow dashed line is the current stock price. Green lines represent positive gamma (+G), and red lines represent negative gamma (-G). The larger gamma level has the stronger influence, while the smaller gamma has less impact.
1. Large Positive Gamma Above Price = Magnet. When positive gamma above price is larger than the negative gamma above price, dealer hedging on that positive gamma can create buying pressure that helps pull price upward toward that level despite small negative gamma resistance above. This is why it can act like a magnet.
2. Positive Gamma Below Price = Support. When positive gamma below price is larger than any negative gamma below price, dealer hedging can help absorb selling pressure, reinforcing support if price falls (positive GEX below price does NOT pull price lower), it only reinforces support. IF price approaches low levels that positive gex level may find support and bounce hold price from falling lower .
3. Negative Gamma Above Price = Resistance. When negative gamma above price is larger than the positive gamma above price, dealer hedging can create selling pressure into rallies at that negative level. This can cap upside and cause that level to act as resistance.
4. Negative Gamma Below Price = Magnet below. When negative gamma below price is larger than the positive gamma below price, dealer hedging can amplify downside movement and pull price lower toward that negative gamma. As price declines, it may be pulled toward that larger negative gamma level, making it act like a downside magnet.
Note:
Remember, gamma does not guarantee price movement. It highlights where dealer hedging may have the greatest influence. I use it alongside options flow, and other market data to build a higher-probability trading thesis.
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