What is GEX?
- GEX (Gamma Exposure) measures how sensitive the market is to changes in the stock price, based on the options positions held by market participants.
- Positive GEX: The market tends to be more stable; price moves are slower and more predictable.
- Negative GEX: The market is more volatile; price moves can accelerate quickly.
Imagine the stock price as a marble rolling on a board:
- With positive GEX, the board is mostly flat—marbles roll slowly.
- With negative GEX, the board is steep—marbles can speed up unexpectedly.
What is Gamma?
- Gamma is the rate of change of an option’s delta with respect to the stock price.
- High gamma at a strike means small stock moves can cause large changes in hedging activity by option sellers, increasing volatility at those levels.
Covered Call Strategy Overview
- Own the stock
- Sell a call option on that stock
- Goal: Earn premium income, with some downside protection, but risk having the stock called away if it rises above the strike price.
- Best used in: Stable or moderately bullish markets.
Wheel Strategy Overview
- Step 1: Sell cash-secured puts on a stock you want to own.
- Step 2: If assigned, buy the stock at the strike price.
- Step 3: Sell covered calls on the stock you now own.
- Repeat: Continue selling puts and calls to generate income.
Understanding “Walls” and “Peaks” in BigDipperOptions
When using BigDipperOptions, you may see metrics like:| Metric | Value |
|---|---|
| call_wall_strike | 39.0 |
| max_gamma_call_strike | 35.0 |
| max_gamma_put_strike | 34.0 |
| put_wall_strike | 38.5 |
- Call Wall: The strike with the largest concentration of call options (by GEX). Acts as resistance—prices near this level may stall or reverse.
- Put Wall: The strike with the largest concentration of put options (by GEX). Acts as support—prices near this level may bounce.
- Max Gamma (Calls/Puts): Strikes where gamma is highest. These are “sensitive” points—small price moves can trigger large hedging adjustments and increase volatility.
How to Use These Numbers
For Covered Calls:
- Avoid selling calls at the max gamma call strike (e.g., 35.0)—these are volatile areas.
- Look near the call wall (e.g., 39.0)—selling just below this level can provide good premium with less risk of immediate assignment.
- Check GEX: Positive GEX means a more stable environment for income strategies.
For the Wheel Strategy:
- When selling puts: Reference the put wall (e.g., 38.5) and avoid max gamma put strikes (e.g., 34.0) for more predictable outcomes.
- When selling calls after assignment: Use the call wall and avoid max gamma call strikes for smoother trades.
- General rule: Sell options just under walls for premium, avoid max gamma strikes for less volatility.
Key Takeaways
- Walls = Gravity Points: Prices tend to gravitate toward these due to heavy hedging.
- Max Gamma Strikes = Volatility Hotspots: Price changes here can be sharp and unpredictable.
- Positive GEX = Predictable: Favorable for covered calls and wheel strategies.
- Negative GEX = Volatile: Use caution; may be better for advanced strategies like spreads.
Example
Suppose NVDA trades at $37:- Call Wall at 39, Put Wall at 38.5: The stock is below resistance. Selling a covered call at 38.5–39 can capture premium with lower risk of assignment.
- Max gamma calls at 35, puts at 34: Avoid these strikes for income trades; they are more volatile.
- GEX: If positive, expect gentle price changes; if negative, be cautious.
In summary:
- Use call/put walls and max gamma strikes as reference points.
- Sell options just under walls for income.
- Avoid max gamma strikes for smoother trades.
- Use GEX to assess market stability and adjust your strategy accordingly.