When dealers are long gamma, the index grinds instead of lurching

When dealers hold options positions that make them buy dips and sell rallies, their hedging calms the index. Moves get absorbed rather than extended, volatility stays low, and that calm tends to favour a slow grind higher.

Hedging as a stabiliser

Dealers hedge to stay neutral. When they are long gamma, a falling market makes them buy and a rising one makes them sell, which dampens both directions. When they are short gamma, the reverse happens and hedging amplifies moves.

The switch between the two regimes often sits near a particular index level, and crossing it can change the character of the market from one day to the next.

What I'm watching

• Estimated dealer gamma across the major index options
• The level where positioning is expected to flip
• Realised volatility against implied, which shows the dampening at work

Where I stand

Long, while dealers are long gamma and the index sits above the flip level. The regime rewards patience and punishes panic.

What would change my mind

The index falling through the flip level. Below it, dealer hedging adds to moves instead of absorbing them, and the grind can turn into a lurch.