Negative gamma: the amplifying market

The physics of the regime

Below the gamma flip, market makers are short gamma. Price falls, they sell; it rises, they buy. Their hedging is an accelerator that pushes price in the direction it is already going, and all the harder as price nears the large put strikes.

What you see in the book and the footprint:

• liquidity that pulls away ahead of price, levels that melt before being touched;
• accelerations that seem to come out of nowhere, with no large visible order: that is the hedges' aggression, spread across small clips;
• ranges that widen, long wicks, a VWAP that no longer attracts anything;
• absorptions that give way, and that is the next lesson.