Dealer Hedging
How market makers adjust positions to stay delta-neutral, creating predictable price effects.
Dealer hedging is the process by which options market makers adjust their stock/futures positions to maintain delta neutrality.
- Long gamma dealers: Buy as price falls, sell as price rises → stabilizing
- Short gamma dealers: Sell as price falls, buy as price rises → amplifying
These hedging flows are mechanical and predictable, which is why GEX analysis can forecast price behavior at specific levels.
See also: Gamma, Positive Gamma (Long Gamma), Negative Gamma (Short Gamma)