A gamma wall means nothing on its own

I don’t think a gamma wall means much unless you compare it to how much the stock actually trades.

A big gamma number on its own doesn’t tell you a lot. Big compared to what?

So I’ve started expressing the gamma as a percentage of average daily volume. Per 1% move in the stock, what share of a normal day’s volume would have to trade just to hedge it?

That changes the picture quite a bit.

Apple peaks at something like 13% of its daily volume. Microsoft is a much bigger one, around 25% near $550. That’s the call wall I wrote about last week, the one MSFT keeps bumping into.

If the street is long those options, the hedging leans against the move. Dealers sell into rallies and buy the dips. When that hedging is a quarter of a normal day’s volume, I think it’s far more likely to cap or pin the stock.

If the number is 5% or below, I think you’re going to struggle to pin it. The hedging is too small next to everything else trading that day.

That’s my theory, and we’ll see if I’m right. But without scaling it to volume, I don’t really see what the number is telling you.

Turning a raw positioning number into something you can actually use is one of the habits that live in my framework. What to scale it against. Where the threshold starts to matter. When to ignore it completely.

Free 60 minutes peak into my framework, linked below.

Watch my free masterclass (exclusive for serious option traders)

If you want to skip the masterclass and jump straight into our course, the Options Insight Advantage, this is the link.

Jump straight into our course, the Options Insight Advantage