Market lesson · Market lessons
Negative gamma days and wider ranges
The gamma regime changes how far moves travel.
When price is above the gamma flip, dealers are long gamma and their hedging dampens moves. When price falls below the flip, dealers go short gamma and their hedging amplifies moves. The same news event hits differently depending on which side of the flip you are on.
Two regimes, one flip level.
Above the GAMMA FLIP: POSITIVE GAMMA, MOVES DAMPEN. Below it: NEGATIVE GAMMA, MOVES EXTEND. The line divides a market that absorbs volatility from one that amplifies it.
In negative gamma, expect bigger swings.
Dealers selling into weakness and buying into strength adds velocity to moves that would otherwise stall. Intraday ranges expand. Tight stops get picked off more often because even small news creates outsized price reactions. If you widen stops below the flip, cut size so your dollar risk stays the same.
The market is below the gamma flip. Price drops and dealers rebalance their hedges. Their hedging action most likely:
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C. Adds to the drop as dealers sell to rebalance. Short-gamma dealers sell into weakness to stay delta-neutral. That selling pushes price further down, amplifying the original move.