GEX Dealer HeatmapHere's the full publication description:
This indicator, "Dealer Heatmap", attempts to model gamma exposure (GEX) at each options strike level and visualize where market maker hedging activity is most likely to create gravitational pulls, support floors, and volatility amplification zones.
The idea is: if market makers are net long gamma at a given price level, they mechanically buy dips and sell rallies to stay delta-neutral — creating a pinning force. If they are net short gamma, they do the opposite, amplifying directional moves away from that level.
True GEX data requires live options chain open interest and per-strike gamma values, which TradingView does not expose to Pine Script. This indicator models the GEX structure using gamma's well-documented bell-curve decay from the at-the-money strike, VWAP-anchored flip zone estimation, and put-skew adjustments for downside levels. It is a structural proxy, not a precise measurement. I'll cover the assumptions and their justifications throughout.
🔹 The Premise — How Market Makers Create Price Structure
To understand why this indicator is useful, you need to understand what market makers actually do when they sell you an options contract.
When you buy a call option on a stock, someone has to take the other side of that trade. In most cases, that counterparty is a market maker — a firm whose job is to provide liquidity, not to take directional bets. They sell you the call, and they are now short that call.
A short call position has negative delta. If the stock moves up, the market maker loses money on that short call. To remain delta-neutral — their fundamental goal — they must buy shares of the underlying. They hedge.
This hedging behavior is not random. It is mechanical, predictable, and happens continuously as price moves. The size of the hedge they must put on per unit of price movement is governed by a greek called gamma.
🔸 What Gamma Actually Means in Practice
Assume a market maker has sold a call option with a strike of $500 on a stock currently trading at $498. The option's delta is 0.45 — meaning for every $1 the stock moves up, the option gains $0.45 in value. The market maker, short that option, loses $0.45 per share for every $1 move up.
To hedge this, they buy 45 shares per 100-contract position. This keeps them delta-neutral at $498.
Now price moves to $499. The option's delta has shifted — say it's now 0.52. The market maker needs to be long 52 shares, not 45. So they buy 7 more shares. Price moves to $500 — now the delta is 0.60. They buy 8 more shares.
Every time price moves up toward a strike where market makers are short calls, they buy more of the underlying. This buying pressure acts as a gravitational pull toward the strike — and it accelerates as price gets closer.
This is positive gamma exposure. The market maker's hedging activity is stabilizing — they buy when price falls, sell when price rises. The strike becomes a magnet.
🔸 Negative Gamma — When Market Makers Amplify Moves
The opposite condition arises when market makers are net long the options they've sold. This happens primarily in high-put-volume environments or when dealers have taken on unusual positioning.
In negative gamma, the dealer's hedging goes the other way. Price falls — they sell more underlying to stay delta-neutral. Price rises — they buy more. Their hedging amplifies the move rather than dampening it.
This is why markets in negative GEX environments tend to exhibit large, fast, trending moves. The dealer community is no longer acting as a shock absorber. They are adding fuel.
Jarrow and Protter (2012) formally documented the feedback loops that arise when large options hedgers must dynamically hedge in the underlying market, finding that such hedging creates self-reinforcing price dynamics that persist until the gamma exposure unwinds.
Ni, Pearson, and Poteshman (2005) found statistically significant evidence that options market maker hedging causes stock prices to cluster around option strike prices on expiration dates — direct empirical confirmation of the gamma pinning effect.
The core insight is this: strikes where dealers are long gamma become support and resistance levels — not because of order flow memory or technical analysis, but because of mandatory, mechanical hedging activity that occurs with every tick of price.
🔸 The GEX Flip Point — The Most Important Level on the Chart
At any given time, the market transitions somewhere between positive and negative net dealer gamma. The price level where this transition occurs is called the GEX flip point.
Above the flip point, dealers may be in negative gamma — amplifying moves higher.
Below the flip point, dealers may be in positive gamma — dampening moves lower.
This single level often explains why a market behaves in a trending, high-volatility way above a certain price but becomes sticky and range-bound below it. The flip point is not always the ATM strike. In a market with heavy put buying, it can be significantly below spot price — meaning even with price elevated, the dealer community is still net long gamma and suppressing volatility.
Kavajecz and Odders-White (2004) documented how options market activity significantly shapes the distribution of liquidity in the underlying equity market, with the most pronounced clustering occurring at the strikes with the highest open interest — consistent with the GEX framework's emphasis on high-OI strikes as structural levels.
🔹 How It Works — The Dealer Heatmap Model
🔸 Strike Level Construction
The indicator begins by identifying the at-the-money (ATM) strike — the options strike nearest to the current close price, rounded to the user-defined strike spacing. This is the single most important input in the model. Real options chains use standardized strike intervals: $1 for low-priced stocks, $5 for mid-cap equities, $25 for ETFs like SPY and QQQ, and $50–$100 for indices like SPX or ES futures.
Setting the strike spacing correctly for your instrument is the most important configuration step. If you set $5 spacing on a $50 stock where real strikes are $1 apart, the model will misplace every level significantly.
From the ATM strike, the indicator projects equally-spaced levels upward (negative GEX / resistance zones) and downward (positive GEX / support zones) based on your selected number of levels.
🔸 Gamma Strength Decay — The Bell Curve Model
True gamma is not uniformly distributed across all strikes. It concentrates heavily at the ATM strike and decays rapidly as you move further away. This is a mathematical property of the options pricing model — the Black-Scholes gamma function peaks at the money and falls off in a bell-curve shape.
The Dealer Heatmap models this with an exponential decay function:
Strength = e^(−decay × normalizedDistance²)
Where normalizedDistance is the distance from ATM expressed as a percentage of the current price. This produces a score of 1.0 at the ATM strike decaying toward 0.0 at far-out-of-the-money levels — matching the real-world distribution of gamma across strikes.
The Gamma Decay setting controls how steep this curve is. A decay factor of 1.5 (the default) produces a moderately wide distribution — reasonable for normal-volatility environments where OI is spread across several strikes. Increasing it to 3.0 or higher concentrates nearly all the modeled GEX into the 1–2 strikes nearest to the ATM, which better represents low-volatility, expiration-day, or high-IV-crush environments where gamma is extremely concentrated.
There are limitations here. The real distribution of gamma across strikes depends on where traders have actually bought and sold options — which varies by symbol, expiration cycle, and market conditions. This model assumes the distribution follows the theoretical Black-Scholes shape. In reality, skew and the volatility surface cause gamma to be distributed unevenly. The model cannot account for this without live OI data.
🔸 The Heatmap Visualization
Each zone between consecutive strike levels is drawn as a filled box. The fill intensity — how bright and opaque the zone appears — is a direct visual encoding of the modeled GEX strength at that level.
Zones glowing brightest are nearest the ATM strike. They represent the strongest modeled gamma pull. Price, when it approaches these zones, is most likely to encounter mechanical hedging pressure from the dealer community.
Zones that are faded and dim represent weak, far-OTM gamma exposure. These are areas where hedging flows are minimal and directional momentum is more likely to carry through without resistance.
Red zones above the ATM strike represent negative GEX levels — dealer hedging in these zones is pro-cyclical and amplifying. A breakout into a bright red zone suggests the move may accelerate as dealers must hedge in the direction of the move.
Teal zones below the ATM strike represent positive GEX levels — dealer hedging is counter-cyclical and dampening. Price approaching a bright teal zone is entering an area of natural mechanical support.
The yellow ATM band is the pinning zone — the strike where gamma is strongest and the dealer hedging creates the tightest gravitational pull. On options expiration days, price frequently closes near this level.
🔸 The GEX Flip Zone
The flip zone is modeled as a band around the VWAP-anchored strike — the strike nearest to the session's volume-weighted average price. This is the indicator's best estimate of where dealer gamma transitions from net positive to net negative.
When price is trading inside the flip zone, the yellow background highlight activates on the chart bars. This signals a transitional environment — dealer hedging behavior is ambiguous, and price may exhibit choppy, unpredictable behavior before committing to a direction.
Exiting the flip zone with conviction — either breaking above into negative GEX territory or dropping below into positive GEX — often precedes a regime change in volatility behavior.
🔸 Put Skew Adjustment
In most equity markets, there is chronic excess demand for put options relative to calls. Retail investors and institutions buy puts for portfolio protection. This structural imbalance means that in practice, downside strikes tend to carry more open interest and gamma than a symmetric bell-curve model would suggest.
The Put Skew setting adjusts for this by boosting the strength scores on below-ATM (positive GEX / support) levels proportionally. A skew factor of 0.25 (the default) adds a modest boost to downside strikes, with the boost scaling with distance from ATM — the further below, the more of a skew adjustment is applied.
For indices like SPX, SPY, and QQQ where put-buying is especially pronounced, increasing this to 0.4–0.6 produces a more realistic representation of the actual gamma distribution. For individual equities with balanced call/put OI, setting it closer to 0.0 is more appropriate.
🔸 VWAP Overlay
The VWAP is plotted as a reference line in orange. It serves as the anchor for the flip zone calculation and provides session context. In GEX frameworks, VWAP carries additional significance — it represents the average price at which the most volume has transacted, and market makers frequently reference it as a benchmark for their own positioning throughout the session.
🔸 Right-Side Labels and Score Bars
Each level is labeled on the right edge of the heatmap with the strike price, a normalized strength score from 0–100%, and a visual dot-bar indicator (▰▰▰▱▱▱▱▱) for at-a-glance magnitude reading. The label colors match the zone fill intensity — brighter label, stronger level.
🔹 Settings Reference
Strike Spacing — Match to the real options chain for your instrument. This is the highest-impact setting.
Levels Above/Below — How many strike levels to display on each side. More levels gives a fuller picture of the gamma landscape but increases visual density.
Heatmap Width (bars) — Controls how far back the filled boxes extend on the chart. Shorter values focus the visualization on recent price action. Longer values help when zoomed out.
Gamma Decay — Controls how steeply strength falls off away from ATM. Higher values = tighter concentration at the money.
Put Skew — Boosts downside level strengths to reflect structural put-buying demand. Higher for indices, lower for individual stocks.
Flip Zone Width — Widens or narrows the transitional zone around the flip strike. Wider values are useful in high-volatility sessions where the exact flip level is uncertain.
Max Fill Opacity — The transparency of the strongest zones. Lower values (more opaque) make the heatmap more visually dominant. Higher values keep it subtle in the background.
🔹 Closing Remarks
Gamma exposure is one of the most structurally robust sources of mechanical price pressure in modern equity markets. Unlike support and resistance drawn from price memory or subjective chart patterns, GEX-derived levels exist because they are actively maintained by the dealer community's mandatory hedging obligations. They do not require a trader to "respect" them — they are reinforced by institutional-scale buying and selling that occurs automatically.
That said, this indicator is a model. It approximates the GEX landscape using theoretical gamma distribution and structural assumptions — it does not read actual options chain data. Strike levels with genuine unusually high open interest concentrations, which would appear as anomalously strong GEX in real data, will not be captured here unless they happen to align with the modeled bell curve.
The heatmap is best used as a structural context tool — understanding which zones represent natural gravitational levels, where amplification is likely on a breakout, and where the market maker community's hedging is most active. Strong zones do not guarantee reversals. What they provide is a probabilistic edge: the awareness that entering a bright teal zone puts mechanical buying pressure on your side, and that breaking into bright red territory may be accompanied by dealer-driven acceleration.
Use it in combination with your existing analysis. The heatmap tells you where the structure is. You still need to determine when and how to act on it.
🔹 References
Gamma Exposure and Market Maker Hedging
Jarrow, R., & Protter, P. (2012). A dysfunctional role of high frequency trading in electronic markets. International Journal of Theoretical and Applied Finance, 15(3).
Ni, S. X., Pearson, N. D., & Poteshman, A. M. (2005). Stock price clustering on option expiration dates. Journal of Financial Economics, 78(1), 49–87.
Liquidity and Options Market Impact on Underlying
Kavajecz, K. A., & Odders-White, E. R. (2004). Technical analysis and liquidity provision. Review of Financial Studies, 17(4), 1043–1071.
Volatility and Dealer Positioning
Gârleanu, N., Pedersen, L. H., & Poteshman, A. M. (2009). Demand-based option pricing. Review of Financial Studies, 22(10), 4259–4299.
Bollen, N. P. B., & Whaley, R. E. (2004). Does net buying pressure affect the shape of implied volatility functions? Journal of Finance, 59(2), 711–753
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