A gamma flip is a term used to mark the stock price at which dealers are estimated to switch from a net positive gamma position to a net negative gamma position, or vice versa. Gamma represents the acceleration of directional exposure. If the price falls below the gamma inflection point, then are modeled to have negative gamma, and therefore enabling a wider trading range.

This point here with the arrow, where the shaded region flips left to right, is where the gamma flip point is. 

Intermediate: How to Find Gamma Flips

SpotGamma models the point of gamma flips for you on all major index products and equities as the Zero Gamma level. However, it is important to note that the underlying security must move a decent way up or above Zero Gamma before chain reactions can be anticipated as a result of dealer hedging. Zero Gamma is simply the inflection point, but bearish feedback loops are not expected to ignite until breaching the Volatility Trigger™. Likewise, the underlying would normally be decently above Zero Gamma before Call Walls start helping to pull the price upward, which is our major resistance level to the upside. 

Advanced: Understanding Gamma Flips

A trader that is net long options has a positive gamma position, and hedges by selling stock as it goes up, and buying stock as 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 the trader must hedge by selling the underlying 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. 

And knowing how a gamma flip affects positioning and delta-hedging needs as traders, we can understand the effect it has on market maker books, which is what we call market gamma. This causal relationship to gamma positioning and its influence on the market is fundamental to how and why we model market gamma for you each day.