Gamma Flip: A Primer
In options trading, a gamma flip marks the price level where market-maker hedging changes direction — a tipping point that can turn a calm market volatile.
When dealer positioning shifts from positive to negative gamma, their hedging behavior flips from damping moves to amplifying them. This guide explains what a gamma flip is, why it moves markets, and how traders can use it to understand volatility.
Why the Gamma Flip Matters
Gamma season is always in.
But when is gamma season bullish or bearish?
Let’s talk about the gamma flip and what that means for the broader markets as well as individual stocks. But first, we need to discuss a core assumption of gamma exposure that helps explain dealer behavior.
The Assumption of Gamma Exposure
It is assumed that market makers (MMs) are always long calls and short puts in a positive gamma market.
This means that investors are selling out-of-the-money (OTM) calls and buying OTM puts. For hedging purposes, the MM needs to short shares to adjust to their positive delta and remain delta neutral.
Is this accurate? Most likely not, MMs provide liquidity everywhere. However, for modeling basic gamma exposure, you need to make this assumption.
The reasoning for this assumption is that markets typically always go up (bull markets > bear markets). Does this matter in the short term? Also, no, since things can change very quickly, especially in this new options climate. But it's an assumption, nonetheless.
More on That Assumption
In a bull market, investors and retail traders are usually long shares and will sell covered OTM calls for income while buying OTM puts for downside protection.
This setup reinforces the view that MMs are long calls and short puts, buying shares on the way down and selling on the way up. During this phase, gamma exposure stays positive, and volatility tends to stay contained.
What Happens During the Gamma Flip
The gamma flip occurs when net gamma exposure moves from positive to negative. When that happens, MMs must reverse their hedging strategy.
Instead of buying dips and selling rallies, they now sell into weakness and buy into strength. This change creates sharper, faster price swings and leads to heightened volatility until gamma exposure turns positive again.
When Gamma Turns Negative
Because the gamma flip often happens as a stock or index begins trending lower, the shift to negative gamma can accelerate declines and trigger flash-crash-style moves.
Eventually, the system stabilizes as markets mean-revert and MMs rebalance their exposure.
You can see this dynamic clearly in the S&P 500 and VIX: when gamma exposure turns negative, volatility spikes. Once exposure flips positive again, the VIX typically cools off.
Apply It to Individual Stocks
This same concept applies to individual stocks as well, though the effects are harder to measure since there isn’t a volatility index for every single equity.
Still, the logic is the same: when dealer hedging flips, volatility tends to rise.
TL;DR
When net gamma exposure turns negative, things are at least temporarily bearish until the trend stabilizes.
The gamma flip, that transition from positive to negative exposure, marks where volatility increases.
Negative gamma exposure, however, often appears near potential reversal points, meaning stocks in this zone are worth watching for future long opportunities once conditions normalize.
More Options‑Education from Unusual Whales
- Gamma: A Primer – Explains the basics of gamma and why it rises in shorter-dated options.
- Gamma Pinning: A Primer – Breaks down gamma pinning and how it can keep prices near key strikes.
- How to Track Spot Gamma and Why Spot Gamma OI Changes Intraday – Outlines how to track net gamma and why spot-gamma values shift during the day.
(Editor's note: This story was updated on November 11, 2025)