Hedging Bands

Dormant gamma activation zones

Hedging Bands

Hedging bands identify strike zones where concentrated dealer gamma is dormant but will activate as price approaches. Unlike standard support and resistance levels based on chart patterns, hedging bands are derived from the actual options positioning of dealers. When price enters a band, mechanical hedging flows create real buying or selling pressure.

Band Structure

Each hedging band is defined by a central strike, a half-width (the distance from the strike where activation begins), and upper and lower boundaries. The engine also provides an activation probability that estimates the likelihood of price entering the band within the current session.

Band Fields

Market Impact

When price enters a hedging band, the dormant gamma activates and dealers begin hedging. The direction of the flow depends on whether the band contains positive or negative gamma:

Positive gamma bands act as shock absorbers. As price enters the band, dealers buy on dips and sell on rallies, creating a mean-reverting force that tends to push price back toward the center of the band. These bands function like dynamic support or resistance levels.

Negative gamma bands act as accelerators. As price enters the band, dealers trade in the direction of the move, potentially triggering rapid price acceleration. A breach of a negative gamma band can lead to a cascading move.