Positive vs Negative Gamma: Why Regime Changes Everything

What is a Gamma Regime?

The gamma regime describes the overall character of market maker hedging at the current price level. It's determined by whether the net gamma exposure at and around the spot price is positive or negative.

This single variable — positive or negative — changes everything about how the market behaves. It determines whether moves are dampened or amplified, whether price pins to levels or trends through them, and whether volatility contracts or expands.

GammaLens calculates the regime in real time and displays it as a badge on every tool — so you always know the current environment before you trade.

Positive Gamma: The Stabilizer

In a positive gamma regime, market makers are net long gamma. Their hedging activity works against price movement:

Price rises → dealers sell stock (rebalancing delta down). This creates selling pressure that slows the rally.

Price drops → dealers buy stock (rebalancing delta up). This creates buying pressure that cushions the decline.

The result: price tends to stay in a range. Moves are smaller than expected. Implied volatility tends to decline. The market "pins" to high-gamma strikes, especially near expiration.

Trading strategy in positive gamma: mean reversion works well. Fade extremes, sell elevated volatility, expect range-bound behavior. Breakouts are less likely to follow through.

Negative Gamma: The Amplifier

In a negative gamma regime, market makers are net short gamma. Their hedging activity amplifies price movement:

Price drops → dealers sell stock (their short gamma forces them to hedge in the same direction as the move). This adds to selling pressure.

Price rises → dealers buy stock. This adds to buying pressure.

The result: moves are bigger than expected. Trends accelerate. Intraday ranges expand. Implied volatility tends to increase. Levels that normally hold as support or resistance get blown through.

Trading strategy in negative gamma: momentum and trend-following work better. Don't fight the move. Breakouts are more likely to extend. Mean reversion is dangerous — the "dip" can become a crash.

Identifying Regime Changes

Regime changes happen when price crosses the zero gamma line — the point where net GEX flips sign.

These transitions are some of the most important moments in market structure. A market that was calm and range-bound can suddenly become volatile and directional when it crosses into negative gamma territory.

Watch for these signals:

Price approaching zero gamma from above — potential volatility expansion ahead.

Price crossing below zero gamma — regime change confirmed, expect amplified moves.

Price recovering back above zero gamma — stabilization returning, volatility likely to contract.

GammaLens shows the zero gamma level on the Gamma Profile chart and updates the regime badge in real time, so you can see transitions as they happen.

Regime in Practice: Real Examples

Consider a typical week in SPY:

Monday-Wednesday: SPY trades between the call wall at 590 and put wall at 575, with zero gamma at 580. Price is above ZG — positive gamma regime. Intraday ranges are tight, dips to 582 get bought, rallies to 588 get sold.

Thursday: Economic data surprises to the downside. SPY drops to 579, crossing below zero gamma. The regime flips negative. Instead of bouncing, the selling accelerates. Dealers are now short gamma and selling into the decline.

Friday: SPY reaches the put wall at 575. The massive put gamma there creates enough buying pressure to stabilize. Price pins near 575 into expiration.

The trader who understood the regime shift on Thursday had a massive edge — they knew not to buy the dip at 579, and instead waited for the put wall at 575.