---
title: 'Gamma Levels Aren''t Magic - Here''s What They Actually Do'
source: 'https://youtube.com/watch?v=EI6nlav2GFs'
video_id: 'EI6nlav2GFs'
date: 2026-08-05
duration_sec: 1172
---

# Gamma Levels Aren't Magic - Here's What They Actually Do

> Source: [Gamma Levels Aren't Magic - Here's What They Actually Do](https://youtube.com/watch?v=EI6nlav2GFs)

## Summary

This video features an interview with options expert Gary Nagy from Tanuki Trade, explaining how gamma levels (GEX) should be used by swing traders. It clarifies that gamma levels are not predictive signals but reaction zones, and demonstrates a four-layer market structure analysis on SPX.

### Key Points

- **Gamma Levels Are Not Predictions** [00:03] — Gamma levels are not crystal balls; they are reaction zones where options positioning is concentrated, and market behavior may change due to dealer hedging.
- **Definition of Gamma** [01:30] — Gamma measures how fast an option's delta changes when the underlying price moves. Dealers hedge delta exposure, so gamma concentration creates hedging pressure zones.
- **Right Way to Think About Gamma** [02:12] — Think of gamma levels as an activity map, not a buy/sell indicator. They show where positioning is concentrated and where volatility behavior may change.
- **Four Layers of Market Structure** [02:42] — The four layers are: 1) volatility regime, 2) key GEX levels, 3) open interest/positioning, 4) current market volume.
- **Selecting the Right Expiration** [03:38] — For swing trading, choose an expiration matching your strategy. GEX calculations are expiration-specific, so zero DTE traders use different expirations.
- **Volatility Regime: HVL and Positive/Negative Gamma** [04:21] — HVL (high volatility level) is the pivot between positive and negative gamma. Positive gamma dampens volatility; negative gamma accelerates moves and increases volatility.
- **Gamma Regime Does Not Imply Direction** [05:59] — Positive gamma does not mean bullish, and negative gamma does not mean bearish. It describes volatility behavior, not direction.
- **Key GEX Levels: Call and Put Walls** [07:12] — The highest call wall (C1) and put wall (P1) are key reaction zones. They are not automatic rejections or supports; they indicate where to watch for reactions.
- **Levels Are Not Trades** [10:35] — A level is not a trade; it's a place to pay attention. Watch how the market reacts to the level and adjust strategy accordingly.
- **Open Interest and Positioning** [11:03] — Open interest distribution shows where calls and puts are concentrated, providing sentiment clues. Confluence of metrics on the same strike increases the likelihood of a reaction.
- **Current Market Volume** [13:12] — Net volume and detailed volume show whether call or put volume dominates, indicating sentiment. High OTM volume may be speculative plays.
- **Swing Trading Application** [15:37] — In a bullish context above HVL, a swing trader might open bullish spreads, scale out at C1, and hedge if price falls below HVL.
- **Key Takeaways** [18:11] — GEX is context, not signal. Start with the environment (volatility regime) before choosing a strategy. Use the four layers of analysis.

### Conclusion

Gamma levels are reaction zones, not predictive signals. By analyzing the volatility regime, GEX levels, open interest, and volume, traders can better understand market structure and make informed adjustments.

## Transcript

like a crystal ball. They see a put wall or a call wall and they think they know where the market is going. But is that how gamma levels really work? No, gamma levels are not predictions. They are reaction zones
like an activity zone. A put wall never guarantees a bounce and the call wall doesn't guarantee a rejection. They simply show where the options positioning is concentrated and you know where market behavior may change based
on the market maker or dealer hedging activity. So if gamma levels are not really predicting the market, how should traders actually use them? Today we will dig into how swing traders can use gamma levels to better understand the market
structure and identify important reactions zones. I'm joined by chief options expert Gary Nagy from Tanuki Trade who has been trading with options
since 2006 and specializes in swing trading. Hello Hi John, thanks for having me. Full disclosure, this episode is produced in cooperation with Tanuki Trade which is an affiliate partner of
setup profits. That means that I may receive a commission if you subscribe to the special discounts link here on Tanuki Trade. But let's get to the topic. Gary, let's start with the basics. What
do we mean with gamma levels and why does it matter? Very briefly, gamma is one of the option Greeks. It measures how how fast an options delta changes when the underlying price moves. Dealers and market makers need to hedge their
delta exposure in the underlying market. So when the delta itself changes, their So when the delta itself changes, their hedging has to change as well. So gamma which or gex or gamma exposure maps where the current gamma is concentrated
across the option chain for different expirations, and these areas can become important hedging pressures zones, or you know, activity hedging reaction zones in the market. So, if gamma levels are not really about
predicting the markets, what's what is the right way to think about them? predicting where the market will go. Gamma levels show you the options prediction. They are not crystal balls, or buying selling indicators. Think
about them as reaction zones, like an activity map. Gamma levels show you where the positioning is concentrated, where the market may react, where the volatility behavior can change, and where traders should pay attention. So,
before asking for an option trader, before asking the question what kind of option strategy should I use, the better question is what kind of market environment I am currently trading in. And that is why I like to approach the
market structure map in four different layers, which is the first identifying the volatility regime, then the key gas levels, then looking at the open interest, or positioning distribution, and then the current market volume, or
what's happening right now in the marketplace. So, so these four layers are the foundational pillars of the market structure map analysis.
So, let's look at this in an hands-on and practical way by looking at SPX, the and practical way by looking at SPX, the option that follows the S&P 500 index. Show us how you would analyze SPX using those four layers. Right now, we are
looking at the SPX 4-hour chart on the Tanuki Trade web application, and I selected the 29th of May as the expiration, which is
next Friday. If you are, for example a swing trader, it's important to select the right expiration that is matching your option strategy. If you are trading that expiration because you have to understand that GEX calculations and all
the metrics are based on the expiration. So it's a crucial to select the right expiration. If you are for example a zero DTE trader, you select the zero DTE different game. So going back to the 29th of May, here
what we can see is the the first layer, the volatility regime. What volatility regime are we trading in? Right now we can see that we are in? Right now we can see that we are above the HVL. This HVL line is the high
volatility level. This is the pivot between the positive and the negative gamma profile. Right now the Tonic Trade shows us that we are in a positive transition zone, so we have not yet reached the positive gamma territory,
but we are close to being in a positive gamma. On the downside, we see negative gamma. So let's discuss what is a positive gamma regime and what is a negative gamma regime. So in positive gamma, the market makers or dealers are
mostly in positive gamma, which means that uh they are hedging against the move. That's why they are dampening volatility and the price moves. On on the contrary, if we are in negative gamma zone, it means that the
market makers are hedging with the move, so they are making the moves faster, and it usually comes with higher volatility. And HVL is the pivot between the positive regime, positive gamma regime, or GEX profile and the negative GEX
profile. So right now, the first one identifying the volatility regime. We can identify that we are very close to being in the positive gamma zone. This is right now currently in the positive transition, which is between the
put and the call um gamma zone, so we are right in the middle, so we are very close to being in the positive. And it's it's important to know that if we are in a positive gamma environment, it does not automatically means that we are
bullish. And the other one is also important or or true. If we are in a negative gamma zone, so for example, if we are here somewhere, it doesn't mean that it's automatically bearish. It just describes
the volatility regime, describes the behavior, and not the direction. That's important distinction because if you have, for example, a a short seller, short position seller like iron condors or naked shorts or other type of option
environment if you are in a positive gamma zone because if you are in a positive, that that's where volatility tends to be lower. So, it's kind of a safe more safe iron condor in a positive
gamma environment than in a negative gamma environment. So, that's why it's important to understand or at least identify what kind of uh volatility regime we are trading in. That's the first layer of the market structure map
analysis. The second one would be to identify where the key gamma or GEX levels are. What we can see here is that we are above the HVR. That's very important line because that's the pivot
between the positive and the negative GEX zone. Then we can see that the GEX zone. Then we can see that the highest call wall on the upside in this expiration is right now the 7,500, which is we call the C1. This is the highest
call wall. We can see the highest call wall here with the line as well. And also, we can see in this column, the net GEX column, the GEX distribution. And it's obvious to see that this bar is the highest bar because this has the highest
call uh gamma [clears throat] on the upside. What do we mean by a core wall or a put wall? So, the core wall is the highest concentration of core gamma. So, if the market reaches the core wall, that's what I also mentioned that this
is not an automatic rejection, it's not an automatic short. When the market reaches the highest core gamma, where the highest core gamma is concentrated, that's where we need to pay attention because something might happen there.
That's why I I reference this as a reactionary or activity map because uh that is the zone where I need to pay attention. And once again, this is not an automatic signal. So, if we go to C1, the 7,500, doesn't mean that the market
will bounce from back or going up. It just means that I need to watch for the momentum and see how the different levels react. So, as a swing trader, what we need to see where are these pivot lines or or GEX lines where the
market may create a reaction, and then we can anticipate something and at least prepare to roll out, to scale the position, to adjust the hedges, whatever needs to be done for the current uh options trading strategy. So, on the
upside, we see that the closest or the biggest one is C1. Below that, we have C2 and C3. These are smaller GEX levels, you can see on this bar on the right side, that these are smaller green bars showing how big the GEX level are.
And uh we can also see the absolute GEX on the left side, which is another important metric that that sums up or combines the put GEX and the core GEX. And where we see the market approaching the absolute GEX,
uh that can also create an effect, a reaction in the marketplace. And on the downside, we can identify the P1, the 7,300, which is the highest put wall on the downside. So, if the market goes to P1,
uh bounce from P1. So, it's not an automatic support, but at least we at least we know where to watch. If the market goes below P1, then the market may create uh a new exposure on the
downside and and putting down the P1 further if there is a huge uh selling pressure in the marketplace. But at least the first stop, I would say stop uh is at B1, where I need to pay attention if the
market goes there. But HVR is also very important because that's the regime important because that's the regime pivot. If the market goes below HVR, the the moves can be accelerating and the volatility can be a little bit higher.
That's why it's a good to know where the HVR lines are for the specific expiration, the May 29th that I selected right now. So, um once again, the the automatic trades. They are not signals. They are not directional indicators.
They are levels to be paying attention to. A level is not a trade. It's a place to pay attention. So, just watch there behind it? How the market reacts to that level? And then you can adjust your
strategy. So, that's the second um layer of market structure map analysis. And what was the third layer again? The third layer was the open interest, the positioning. How the whole thing looks
like based on open interest. We have different open interest metrics in here. Like the detailed open interest shows us for different strikes, what is the uh distribution between call open interest and put open interest because not not
all Greeks levels are created equal. And I would like to see where the option open interest is distributed. Are there any or are there only like call open
the downside? But right now for this expiration, what we see is that this bias is pretty more or less pretty evenly distributed. We can see a high uh put open interest at 7,200, which is probably a protective put area.
But uh we can um you we you know, we can see a lot of greens on the upside as well. So, I want to see the distribution. And it's also important sometimes to check for the absolute open interest. Where are the
highest levels? Where you combine the call open interest with the put open interest, we can see where the high levels are at 7,400, 7,300, and the 7,500. If you click on here, we can also see what kind of confluences
we have for those levels because we we think that uh the more confluence or the more options metrics are confluencing on the same strike, on the same level, the more reaction we can expect. But again, we
don't know the reaction. We don't know if it's bouncing or if it's uh going um through or or going in the same direction. So, here, for example, the 7,500 shows the highest call open interest, the largest call side gamma
wall, as I explained, and the largest net call volume. So, this also backed by high call volume. I want to see the exposure. How How concentrated is the exposure? How spread out is How How evenly is it distributed between puts
and calls because that can give us some kind of a sentiment clue um based on what's going on in the marketplace for that expiration. And the fourth one, the final layer of this analysis, is what's going on in the
marketplace right now. So, what is the volume doing? And for this, we can also net volume as shows us the in one number, it if it's then the call volume is dominating. If it's red, the put volume. So, clearly
there was a high put volume on the downside here, probably protective puts. But, in detailed volumes, we can see what the volume distribution is for this current expiration. And this one stands out pretty well, the 7355.
There's a huge put volume activity down here. It doesn't mean that the market will go there. It just gives a clue what's going on. And and seeing it together with HVL is can be an important thing
in the lifetime of the trade if I want to open it for next Friday. And sometimes it's it's a very useful to see if there is a very high, for example, call volume on the upside which are OTM or put volume downs on the
downside which are also OTM because these can be some kind of a speculative plays. I'm not sure if the market will go there, obviously, but it tells you something regarding the sentiment and how the
evolving there. So, um so confluence so looking at these these four layers, the confluence is sometimes matter. So, that's why we are showing these little
labels in here. Like clicking on any of them, we will Like clicking on any of them, we will show you what different options metrics strike. And obviously, the whole map can change
very fast if the market moves very fast. So, these levels are not set in stone. If the market changes from one day to the other because some kind of, you know, fundamental news hit the tape, then the landscape changes. But again,
it's important to see like what kind of environment you are trading in. Are you above the HVL in a positive gamma territory or are you below the HVL in a negative gamma zone because you can differentiate between your chosen option
differentiate between your chosen option strategy. But Gary, you are you are specializing in swing trading. That's what you like to trade the most. And you're showing us these four layers of analysis. So if you were to take
analysis. So if you were to take this specific date and SPX, how how would you trade in this specific with this specific analyst analysis as a swing trader? I changed the time frame to daily. It's a very hypothetical
example because I have not analyzed any option strategy before we started this interview. But we are above the HVL line. The whole context is is a bullish context. The market is bouncing back from the high volatility level. And we
are getting into positive gamma territory. So if I were to open a a bullish option spread like a butterfly, a little broken wing butterfly, or some kind of time spreads on the upside, I would monitor if the market um stays
would monitor if the market um stays above the HVL line and can can hit the above the HVL line and can can hit the C1 7500 and then at C1 I would likely at least scale out from the position taking profit a little bit or rolling above the
profit a little bit or rolling above the position or or watching the HVL also gives some kind of clues that if the market goes below HVL then you can you can have an idea that you somehow needs to hedge the position or at least employ
some kind of hedging. And and also scaling out. So so like for trading um fashion the GEX levels and the whole market structure map analysis helps understanding the the context, the entry
context, what's the market is doing right now. And during the lifetime of the trade helps to time the adjustments, the scaling in, scaling out, or or defining target zones. So for example,
in this particular example, which is pretty theoretical, hypothetical, the pretty theoretical, hypothetical, the 7500 would be kind of a nice way to take profit from the position if it goes there. Otherwise, looking for the HVR
and if it's breaking and going back to negative gamma territory, would likely give an idea of hedging or just closing the position. So, these are the different things a swing trader can employ if you are
using this kind of market structure analysis. And it goes without saying that we could have gone much more in depth on this topic, but this is just to give some kind of a glance of how this can be
used. So, Gary, how would you sum up what we've been through and particularly, what would be your two two or three most important takeaways that you want the audience to remember? Yeah, I think that GEX has to be thought
Yeah, I think that GEX has to be thought about as context and not as signal. And start with the environment, like what kind of volatility regime we are in and not with the strategy. Also, use the four layers of thinking, identifying the
volatility regime, the GEX levels, the positioning, the open interest, and the happening in the market. So, this interview have been produced in interview have been produced in cooperation with Tanuki Trade. And Gary,
give us a very short summary of what Tanuki Trade is doing. At Tanuki Trade, we are helping traders to identify these kind of market structure maps and where the most important reaction zones are and also
see behind the market structures using these kind of options matrix already seen in the charting view. We also have a table view and we are using almost the same metrics and can be used on TradingView as well.
you'll find a link in the description to this video and on the screen. They do offer a 7-day free trial and after that you get a 10% discount if you use the link here on Theta Profits. Gary, thank you very much for showing us how you
read gamma levels. Thank you very much for inviting me.