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Using Options Gamma Exposure to Model Realized Volatility

Article Quant Q&A · Author: Sebastien Wdowiak
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Summary

The document asks whether an options gamma exposure index can help forecast realized volatility and how to turn gamma exposure into an implied-move curve across underlying prices. It describes GEX as an aggregate of call and put gamma exposure, calculated using inputs such as implied volatility, strike, and a quantity labeled BDS. The proposed direction is to compare historical GEX values with returns and use that relationship to estimate volatility.

No model, dataset, or empirical result is provided. The author frames this as an open research question and points to existing market tools as examples of the type of chart they hope to reproduce. Any forecast would need a precise GEX definition, a stated forecast horizon, and out-of-sample evaluation; the document does not establish that GEX predicts volatility or explain how an implied-move curve should be calibrated.

Key ideas

  • The document proposes studying the relationship between options dealer gamma exposure and realized volatility.
  • It describes aggregating call and put gamma exposure using options-market inputs.
  • A possible research approach is to compare historical GEX with subsequent returns or realized volatility.
  • It leaves the model specification, forecast horizon, and validation method unresolved.

Tags

OptionsVolatilityDerivatives pricingStatistics
Full text
# How to forecast volatility using gamma exposure index?


# How to forecast volatility using gamma exposure index?












Brainstorming this afternoon.

GEX is the gamma exposure index (https://squeezemetrics.com/monitor/static/guide.pdf). It's the sum of gamma exposure for call and put. Using IV, strike and BDS you can sum gamma for call and put to get an gamma exposure chart as spotgamma do : https://spotgamma.com/free-tools/spx-gamma-exposure/ There is a link between gamma dealer exposure and realized volatility. So if you know gex value you can get volatility (using historical chart with gex and return).

So my question is : how to build a model to get "implied move" in Y axis and price in X axis ?

I know spotgamma and squeeze metrics did it, so it may be possible ! Thanks !!!!

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