How Market Makers Work (And Why You Should Care)

Who Are Market Makers?

When you buy an option on your broker, someone has to sell it to you. That someone is almost always a market maker — a firm like Citadel Securities, Wolverine, or Susquehanna that provides liquidity to the options market.

Market makers don't take directional bets. They don't care if the stock goes up or down. Their business model is to profit from the bid-ask spread — buying at the bid and selling at the ask — while remaining as market-neutral as possible.

To stay neutral, they hedge. And the way they hedge is what creates options market structure.

How Delta Hedging Works

When a market maker sells you a call option, they're now short that call. If the stock goes up, they lose money on the option. To offset this risk, they buy shares of the underlying stock — the amount is determined by the option's delta.

Sold a 0.50 delta call? Buy 50 shares to hedge. If the stock moves up and delta increases to 0.60, they need to buy 10 more shares. If it drops and delta falls to 0.40, they sell 10 shares.

This constant buying-on-the-way-up and selling-on-the-way-down (for call-heavy strikes) is what creates the structural forces in the market. And it all happens automatically, driven by math, not opinion.

Why Gamma Makes Hedging Powerful

Here's where it gets interesting. Gamma determines how much the delta changes — which determines how aggressively market makers need to adjust their hedges.

At strikes with high gamma, small price moves trigger large hedge adjustments. If there's massive open interest at a call-heavy strike with high gamma, every dollar of movement forces market makers to buy or sell thousands of shares.

This is the mechanism that creates call walls (ceilings) and put walls (floors). At a call wall, dealers are long gamma — they sell as price rises toward it, creating resistance. At a put wall, they buy as price drops toward it, creating support.

GammaLens calculates the net gamma exposure at every strike so you can see exactly where these forces are strongest.

Why This Matters for Your Trading

Understanding market makers transforms how you read price action. That support level that keeps holding? It might be a put wall where dealers are forced buyers. That resistance level the stock can't break? It might be a call wall where dealers sell every rally.

The levels aren't based on chart patterns or moving averages — they're based on real money, real contracts, and real hedging obligations. They update as the options chain changes, giving you dynamic support and resistance levels grounded in market microstructure.

This is the edge GammaLens gives you: visibility into the structural forces that most traders can't see.