Strike Concentration

Strike concentration refers to the clustering of open interest at specific strike prices in an options chain. High concentration indicates where the majority of market participants have focused their risk.

For dealers, these strikes are critical because they represent areas of high gamma exposure. If the underlying price approaches these strikes, dealers must hedge more aggressively, leading to increased volatility.

Identifying strike concentration helps traders understand where liquidity is trapped and where potential breakout points exist. It is a fundamental aspect of analyzing the structure of derivatives markets.