The stock market is a very volatile market when it comes to buying and selling shares. Many traders have incurred huge losses as they could not predict the sentiment of the market within few transactions. So, it is very important that as an investor or a trader, you must understand the pulse of the market. But how can you define such a pulse as it has no fixed trend?
Well, this is where gex for stocks comes into play. So, instead of being forcibly purchasing or selling assets on the stock market, you can use the gamma exposure as a measure of price sensitivity. So, what is this gamma exposure and how can it help while trading stocks? The GEX, in technical terms, is a second-order derivative with sensitivity to the underlying security.
How does the gamma exposure work?
Now, there are two aspects when it comes to trading stock measures. One is known as gamma hedging and the other is gamma hedging. However, we will focus on gamma hedging as we are speaking about gamma exposure. Gamma hedging can again be differentiated into long and short gamma.
In the long gamma, the traders buy shares for every point increase in the security price. This indicates that if you are purchasing shares even when the price of each security is increasing, then you belong to the long gamma. On the contrary, short gamma urges traders to purchase stocks for a unit decrease in the price of the securities. In such a case, one may experience that the dealers keep on shifting from short to long gamma and vice versa. The point at which the dealer traverse from long gamma to short gamma is known as the Zero Gamma Level. This helps the people to calculate securities at zero gamma level and enter the market with better information on the stocks.