Gamma exposure assumption

External question — Quantitative Finance Stack Exchange Author: user70540 Original post: https://quant.stackexchange.com/questions/78082 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. When coming to calculate Gamma exposure (or Greek exposure), it's common to assume that traders are buying puts and selling calls to hedge underlining positions. Brokers are doing the opposite: selling puts and buying calls. However, by looking at volume and open interests, this assumption may not be always true because some traders may sell puts and buy calls too. How to estimate the order flow is on buy or sell side? It seems the VIX is one of such evidence: when VIX is rising, traders will buy puts.

External answer — Quantitative Finance Stack Exchange Author: Teddy C Original post: https://quant.stackexchange.com/a/81212 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Squeezemetrics said in their paper that they cross reference transaction level data with OI change to see who's the originator of the transactions: DDOI is a measurement of whether option dealers are short or long any particular option expiration, strike, and type. Because publicly reported open interest (OI) only tells us the number of contracts in existence on any given day, we have to delve into transaction-level data to assess the direction (buy/sell) of every SPX option trade and to bin it according to how it ought to affect open interest, and then finally, to verify trade direction by tracking the subsequent actual change in OI. The popular GEX level provider UnusualWhales.com assumes that orders filled closer to bid are shorted by customers, and those closer to ask are longed by customers. It's not perfect, but to get the most accurate picture of GEX, you need to have access to the exchanges' data with the originators clearly marked.