Positive gamma vs negative gamma: what the sign assumes

Gamma has a sign because positions do

Gamma measures how much an option’s delta changes for a $1.00 move in the underlying. The sign belongs to the position, not to the option type. Long calls and long puts both have positive gamma. Short calls and short puts both have negative gamma.

Long gamma means your delta rises as price rises and falls as price falls. Short gamma means the reverse. For a single position, that is the whole difference.

Sources: Options Industry Council (OCC): Gamma.

What a positive or negative book means

A GEX model adds up gamma across many contracts and gives each one a sign for the side assumed to hedge, usually dealers. A positive book means the model has that side net long gamma at the current price. A negative book means the model has it net short.

Traders often call the negative case a “negative gamma regime”. In a model, it is a sign produced by an assumption. The market does not announce a regime, and the sign can change with price, time and the expiry window you select.

The price where the modeled total changes sign is the gamma flip, covered in its own guide.

Positive and negative gamma side by side

Under the model’s assumptions, the sign changes what a delta-neutral hedger would need to do as price moves. It does not change which way price goes.

Sources: Cboe — Mandy Xu: Much Ado About 0DTEs: Evaluating the Market Impact of SPX 0DTE Options.

What the hedging would look like

Fictional numbers: a hedger’s options add up to a gamma of +2,000 shares per $1.00. If price rises $1.00, the position’s delta grows by about 2,000 shares, so staying neutral means selling about 2,000 shares. If price falls $1.00, it means buying about 2,000. Change the sign to −2,000 and each trade reverses: buy into the rise, sell into the fall.

This holds gamma constant for one step. Real gamma changes with price, time and volatility, and real hedgers choose when, how often and with what instrument they rebalance.

A peer-reviewed study of US stock options found evidence that option market makers’ hedge rebalancing affects stock return volatility and the probability of large price moves. That is a finding about the sample it studied. It does not turn the sign on one chart into a forecast for the next session.

Sources: Cboe — Mandy Xu: Much Ado About 0DTEs: Evaluating the Market Impact of SPX 0DTE Options; The Review of Financial Studies 34(4), 1952–1986 — Sophie X. Ni, Neil D. Pearson, Allen M. Poteshman and Joshua White: Does Option Trading Have a Pervasive Impact on Underlying Stock Prices?.

Why the sign is an assumption

Open interest counts contracts. Every open contract has a long side and a short side, so the count alone carries no sign. A GEX model has to supply one.

The common convention counts call gamma as positive and put gamma as negative. It assumes the hedging side is long the calls and short the puts. Customers can take either side of either option, so at any strike the real sign may be the opposite of the model’s.

In its 2023 SPX 0DTE study, Cboe could measure net market-maker positions because, as the exchange, it sees whether each trade is customer or market maker, buy or sell, opening or closing. It found that flow close to balanced between buying and selling. Public open interest carries none of those fields.

Prism by GEXfreak uses the call-positive, put-negative convention and shows it as the dealer sign in Behind the numbers. It is a stated assumption, not a measurement of dealer inventory.

Sources: Options Industry Council (OCC): General Information (FAQ): Is increased open interest bullish?; Cboe — Mandy Xu: Much Ado About 0DTEs: Evaluating the Market Impact of SPX 0DTE Options.

What open interest cannot tell you

OCC reports new open interest after clearing and pairing opening and closing trades at the end of the day. The Options Industry Council notes that open interest indicates neither a bullish nor a bearish outlook. It leaves out most of what a sign needs.

• Who holds the long side and who holds the short side.
• Whether a position is a hedge, a spread leg or an outright view.
• Whether the short side hedges with shares, futures, other options or not at all.
• Anything opened or closed since the last clearing report. Cboe DataShop, for example, loads the prior night’s figure at the open and holds it all day.

Sources: Options Industry Council (OCC): General Information (FAQ): Is increased open interest bullish?; Cboe DataShop: Frequently Asked Questions.

Reading the sign in Prism

The workspace’s Gamma context card is labeled Model assumption. It compares the last price with the modeled flip in the selected expiry window: above the flip reads Positive gamma, below it reads Negative gamma. When the book has no flip, the card uses the sign of net GEX.

Keep the window attached. Nearest and 30d are different contract populations, and they can carry different signs in the same session. Neither sign is the better forecast.

Before interpreting a sign, choose Pro → Expiry table and model context → Behind the numbers. Check Units, Dealer sign, Open interest, Coverage and Profile built at. A sign built on old open interest or partial coverage tells you less than one built on a complete, current book.

How this sits in a plan you already have

Use the sign as context for how an assumed hedger would respond, inside a plan you already have. It does not choose a side, and it does not tell you how far price will move.

• Note the book’s sign and where the flip sits before the session, then plan the way you already do.
• Treat a negative book as a reason to recheck your own risk limits, not as a signal to sell.
• Treat a positive book as context, not as a promise of a quiet session or a floor.
• If the data clock is not current, stand down. A demo or stale book is not a live book.

What remains unknown

The model does not know the real inventory, the hedge ratio, how often anyone rebalances, or what other flows arrive that day. Other trading, news and thin liquidity can outweigh any hedging the model implies.

A positive book can see a large move. A negative book can see a quiet one. Check price structure, liquidity and event risk before applying your own risk plan.