SqueezeMetrics dealer positioning

Authoritative reference

SqueezeMetrics, The GEX Effect (2017). The publication is no longer hosted at the original squeezemetrics.com/download/The_GEX_Effect.pdf URL. Consumers who need the original PDF should request it from SqueezeMetrics directly via https://squeezemetrics.com; the canonical methodology summary is reproduced in:

• Hull, J. C. Options, Futures, and Other Derivatives (11th ed.), §19 (Greek letters) and §22 (Estimating volatilities and correlations). Pearson, 2021.
• Brunnermeier, M. K. & Pedersen, L. H. (2009). Market Liquidity and Funding Liquidity. Review of Financial Studies 22(6), 2201–2238. DOI: https://doi.org/10.1093/rfs/hhn098.
• Garleanu, N., Pedersen, L. H. & Poteshman, A. M. (2009). Demand-Based Option Pricing. Review of Financial Studies 22(10), 4259–4299. DOI: https://doi.org/10.1093/rfs/hhp005.

The Garleanu–Pedersen–Poteshman paper is the academic anchor for the "dealer net short calls / net long puts" positioning convention that SqueezeMetrics' aggregator codifies.

Consumed by

Gex — aggregate dealer gamma exposure at the underlying spot, decomposed by strike.

Aggregation convention

The crate implements the canonical SqueezeMetrics aggregate under the short-call / long-put dealer sign convention:

$${\mathit{\text{GEX}}}_{\text{call},i}=-{\gamma }_i\cdot O{I}_i\cdot m\cdot S^2{\mathit{\text{GEX}}}_{\text{put},i}=+{\gamma }_i\cdot O{I}_i\cdot m\cdot S^2$$$$\mathit{\text{GEX}}=\sum _i{\mathit{\text{GEX}}}_{\text{call},i}+\sum _i{\mathit{\text{GEX}}}_{\text{put},i}$$

where:

• ${\gamma }_i$ is the per-contract Black–Scholes gamma at the option's NBBO mid.
• $O{I}_i$ is the open interest from engine open-interest cache.
• $S$ is the underlying spot.
• $m$ is the contract multiplier — 100.0 for US-listed equity options (the GexParams::contract_multiplier field default).

The per-contract magnitude is therefore ${\gamma }_i\cdot O{I}_i\cdot 100\cdot S^2$ under the production default — not ${\gamma }_i\cdot O{I}_i\cdot 0.01\cdot S^2$. Consumers that want a "dollar gamma per 1 % spot move" derived figure divide the aggregate by 100 on their side; the engine emits the raw aggregate so callers retain control of the post-emission scaling.

Dealer-positioning convention

The aggregate assumes dealers are net short calls and net long puts at the strike level. Calls contribute with a negative sign, puts with a positive sign. Positive net GEX → dealers are net long gamma (price tends to be pinned). Negative net GEX → dealers are net short gamma (moves are amplified).

The analytic implements this sign convention verbatim; the GexTick.call_gex field doc reinforces it ("negative under the SqueezeMetrics convention — dealers are net short calls"). Callers who model alternative dealer positioning (e.g. single-stock options where dealer-flow concentration differs) should post-process the per-strike contributions to suit.

Zero-gamma strike

The analytic surfaces a zero_gamma_strike field on the emission when the cumulative GEX crosses zero within the visible strike range. The interpolation is linear between the two strikes that bracket the sign change — the same convention used in the SqueezeMetrics publication.

What this site does not paste

The SqueezeMetrics publication's full body is not reproduced here. The link above is the canonical reference.