02 / Concepts · Positive vs negative gamma
Positive vs negative gamma
What positive and negative gamma mean for price, and how to read the regime badge.
The regime tells you which kind of market you are trading in right now.
Above the gamma flip: positive gamma#
Dealer hedging trades against the move. Expect mean reversion, smaller ranges, pins, and walls that hold more often. Fading moves into the walls tends to work.
Below the gamma flip: negative gamma#
Dealer hedging trades with the move. Expect trend days, faster expansion and walls that break more easily. Fading is riskier; trade the breakout.
A real example#
The regime badge#
The badge combines the side (POSITIVE or NEGATIVE) with how one-sided the book is:
| Strength | Meaning |
|---|---|
| STRONG | The book is lopsided. Levels should act decisively. |
| MODERATE | A normal reading. |
| BALANCED | Calls and puts roughly offset. Pins are soft: halve size and wait for confirmation. |
When the flip and HVL disagree#
The flip follows the day-trade expiry and the HVL follows the whole book. When price sits between them, the two readings disagree, and that zone tends to be choppy and low-conviction.
Questions#
What is negative gamma?#
A market state where options dealers are short gamma, so their hedging buys strength and sells weakness. Moves tend to extend and ranges widen.
What is positive gamma?#
A market state where dealers are long gamma, so their hedging sells strength and buys weakness. Moves tend to stall and price mean-reverts.