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Dealer Flow
The Dealer-Long-Gamma Assumption: When It's Wrong
Every GEX number rests on one assumption about who dealers traded against. Most days it holds. The days it doesn't are the days the read can invert.
NoVo Options Trading · 2026
To compute net GEX, you must assume which side of each option dealers are on. The standard convention assumes dealers are long calls and short puts. It's a reasonable baseline — and worth knowing where it comes from and when it fails.
Why the baseline usually holds
The assumption reflects typical customer behavior: retail and momentum traders tend to buy calls (so dealers sell them and are effectively long that call gamma on their books via hedging convention), while funds and hedgers buy puts for protection (so dealers are short those puts). On an average day, the aggregate leaves dealers positioned close to what the model assumes, so the sign is right.
When it breaks
Unusual flow can invert it. A wave of institutional call selling (overwriting), heavy put buying for a hedge, or a big structured trade can put dealers on the opposite side of a strike than assumed — and since the sign flips that strike's contribution, a wrong assumption can push the whole net-GEX read, and the flip, to the wrong place. The number looks precise; the assumption underneath just failed.
GEX is only as right as its guess about who dealers traded against — and on abnormal-flow days, that guess is exactly what's wrong.
How to stay honest about it
Treat GEX as a strong-but-fallible read, not gospel. When the tape flatly contradicts the map — price ripping in a supposedly “pinned” positive-gamma regime, or grinding calmly in a “negative-gamma” one — suspect the positioning assumption before you trust the number over your eyes. The tape is the ground truth; GEX is a model of it. When they disagree loudly, the model is the thing to doubt.
More on this: Long-Gamma Mornings vs Short-Gamma Afternoons · How Long Does It Take to Become a Profitable Trader?
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NoVo is a software tool for market analysis and for executing trades you initiate, not financial advice. This article is general education, not investment advice. Options trading involves substantial risk of loss, up to and including your entire capital. NoVo makes no guarantee of profit, win rate, or performance, and past results do not predict future outcomes. You are responsible for your own broker account, configuration, and trading decisions.