Dealer Hedging Estimate
Canonical definition, formula, interpretation, and API reference.
Definition
Estimated shares dealers must buy/sell to re-hedge for a given spot move. Quantifies the mechanical buying/selling pressure from delta hedging.
Formula
Hedging = Net GEX x dSpot / Spot
Approximated from aggregate gamma exposure times the percentage spot move.
Inputs
net GEXspot pricemove magnitude
Output
dealer_shares_to_tradedirectionnotional_usd
Interpretation
- Positive gamma: dealers buy dips, sell rallies — dampening
- Negative gamma: dealers sell dips, buy rallies — amplifying
- Quantifies HOW MUCH mechanical flow each move triggers
Live Example: SPY
Live SPY dealer hedging data temporarily unavailable.
API Reference
Endpoint
GET /v1/exposure/summary/{symbol}
Tier
Growth+
Response field
hedging_estimate.spot_down_1pct, spot_up_1pct
Why Dealer Hedging Matters for Trading
TL;DR
Dealer hedging tells you how many shares must change hands for every 1% spot move, purely to keep dealers delta-neutral. Big number = big intraday vol.
- What it measures
- Estimated share volume dealers must buy or sell per 1% underlying move to maintain a neutral book, derived from chain-wide gamma.
- What it signals
- The magnitude of non-discretionary order flow available to hit the tape. Higher means more amplification or damping, depending on regime.
- Why we measure it
- Volume matters. A regime call without size context is incomplete — high-dealer-hedging names behave very differently from low-hedging ones.
- Who uses it
- Institutional traders sizing orders, HFT / market-making desks, and anyone forecasting intraday volatility.
How to read Dealer Hedging
High hedging in positive gamma
- Large dampening effect
- Ranges hold with conviction
- Walls very effective
- Low realised vol
Good for: premium selling, tight ranges
High hedging in negative gamma
- Large amplification effect
- Small news = large moves
- Walls break violently
- High realised vol
Bad for: short vol — good for: long straddles
Low hedging (any regime)
- Dealer flow is background noise
- Price driven by discretionary flow
- Ignore regime for strategy
- Normal quiet-market reading
Low influence
Rules of thumb
- Normalise by ADV. A 2M-share hedging number on a 100M-ADV name is tiny; on a 5M-ADV name it dominates. Express as % of ADV.
- Combine with GEX sign. Direction of flow matters as much as size.
- Peaks at OPEX. Share count balloons Thu/Fri of expiry week as gamma peaks.
- Skip single stocks with thin options. Dealer flow is only meaningful when options volume is a significant share of equity volume.
- High hedging + high dealer flow risk = danger. Non-trivial flow moving against you = size down.
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