Reading gamma on ES with DeepGamma: one session, step by step
Long gamma brakes, short gamma accelerates
This is the most important lesson of the course: depending on whether market makers are long or short gamma overall, their hedging goes against the move (the market is slowed) or with it (the market accelerates).
On either side of the Zero Gamma, the same impulse lives a different life: above, hedging slows it and sends it back to the center; below, hedging pushes it and stretches it.
Dealers long gamma: the market is slowed
Suppose that dealers, across all strikes, gain 200 ES of delta for every 10 point rally.
- The market rises 10 points. Dealers end up with 200 ES of excess delta.
- To get back to zero, they sell 200 ES into the rally.
- The market falls 10 points. They are 200 ES of delta short and buy 200 ES into the decline.
Result: they sell rallies and buy dips. The market oscillates, returns to its levels, and realized volatility falls.
Dealers short gamma: the market accelerates
Same example, sign reversed: dealers lose 200 ES of delta for every 10 point rally.
- The market rises 10 points. Dealers must buy 200 ES into the rally.
- The market falls 10 points. They must sell 200 ES into the decline.
- Their orders push price further, which forces them to do it again: a self-reinforcing loop.
Result: directional moves, breakouts that hold, expanding volatility. "Gamma squeezes" come from here.
What it changes for you
| Dealers long gamma | Dealers short gamma | |
|---|---|---|
| Hedging | Against the move | With the move |
| Price behavior | Range, mean reversion | Trend, extension |
| Realized volatility | Low | High |
| Breakouts | Often false | Often followed through |
| Suitable strategy | Fade the extremes, short targets | Follow the breakout, wider targets |
| Typical 1 minute candles | Small, wicks on both sides | Large, little retracement |
The pin and the magnets
Near a strike where dealers are heavily long gamma, especially late in a 0DTE session, price tends to be pulled back toward that strike: this is pinning. The strike acts like a magnet.
Conversely, a strike where they are heavily short gamma is a tipping zone. Price can bounce there, but if it breaks through, it often does so fast.
End of the free lesson
The other 17 lessons of this course, its quizzes and the completion certificate open with the Student role.
It's free: join the Discord, click the Student role, then log in with Discord here to access all courses.
→ What the regime changes in your book (capture 4)