Gamma Exposure and Hedging

Gamma exposure refers to the rate of change in an option's delta as the underlying asset price moves. Market makers who sell options are typically short gamma, meaning they must buy the asset as it rises and sell as it falls to stay delta neutral.

This creates a feedback loop that can exacerbate price trends, especially in highly liquid crypto markets. Managing this exposure is a critical task for market makers to prevent runaway losses.

When gamma is high, the need for hedging is more frequent and intense, which impacts overall market volatility. It is a key concept for understanding how derivative flows influence spot price discovery.