"Gamma Flip” is a term used to mark the stock price at which options dealers are estimated to switch from a positive gamma hedging position to a negative gamma position.

How to use Gamma Flip

A trader that is net long options has a positive gamma position, and hedges by selling stock as the it goes up, and buying stock as the it goes down. This can have the effect of dampening the underlying stocks movement and creating a low volatility environment. 

Conversely, if a trade is net short options then must hedge by selling as the stock goes down, and buying as the stock goes up. This could make the stock more volatile as this trading pressure pushes the stock in its prevailing direction.

Why does Gamma Flip matter?

Most basic S&P 500 market gamma models assume that options dealers are long calls (positive gamma) and short puts (negative gamma). By estimating the gamma value of these call and puts at different S&P 500 price levels, you may be able to estimate the price at which S&P500 “gamma flips.”