3.3.4 Gamma Exposure

The GEX chart shows estimates of total gamma exposure on the chain based on the underlying spot price at the end of each day. Gamma Exposure (GEX) is calculated using naive assumptions for puts and calls. Under these conditions, positive (negative) gamma indicates that market makers are trading against (with) price action, which tends to reduce (increase) volatility. Skew Adjusted Gamma Exposure (GEX-SA) algorithmically incorporates the implied volatility (IV) of each option to create a relative measure of how bought or sold each contract is, to gauge how bullish or bearish market participants are on the underlying. Thus, strong deviation of GEX-SA from GEX can indicate that the naive assumption has lower accuracy, and that puts may be sold and/or calls may be bought.