How Dealer Net Gamma Can Affect Realized Volatility

Summary

The document asks why positive aggregate option gamma is associated with lower realized volatility and whether market makers’ hedging should stabilize prices even when net gamma is negative. It defines net gamma as call gamma minus put gamma, then raises questions about how the sign of that measure connects to dealer hedging and price behavior.

The text provides no answer or supporting evidence; it is a question rather than an explanation. It leaves open important details, including who holds the options, how dealers hedge, and how those trades interact with underlying price moves. The proposed link between net gamma and realized volatility should therefore be treated as an issue for investigation, not an established result demonstrated by this document.

Key ideas

• The document defines net gamma as aggregate call gamma minus aggregate put gamma.
• It asks why positive net gamma might coincide with lower realized volatility.
• It questions whether hedging under negative net gamma can still stabilize prices.
• It offers no answer or evidence resolving these questions.

Tags

# question about net gamma, zero gamma's effect


# question about net gamma, zero gamma's effect












I have a question about the net gamma like below.

https://support.spotgamma.com/hc/en-us/articles/15413527450899-Net-Gamma

Net gamma is the sum of call gamma minus the sum of put gamma.

1. "Isn't positive net gamma simply a situation where there are more calls than puts? If so, why does it lead to lower realized volatility (RV)? The explanation states: 'A positive gamma position infers lower realized volatility (RV) in the underlying security, while a negative gamma position implies higher RV.' Can someone explain the mechanics behind this?"

2. "Even when net gamma is negative due to a large number of puts, market makers (MMs) still engage in hedging activities, right? Isn't this situation essentially the same as positive net gamma in terms of price stabilization effects? How does this align with the statement about negative gamma positions implying higher realized volatility?"

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.