Excess Returns How Option Dealer Flows Impact the Stock Market
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Jul 11, 2025 
Brent Kochuba, the founder of SpotGamma and an expert in options market dynamics, joins the conversation to unveil the hidden forces of option dealer flows that drive stock market behavior. He explains how concepts like gamma, vanna, and charm impact trader strategies and market volatility. The discussion highlights the significance of dealer hedging and how expiration cycles can signal major market shifts. Real-world examples, including GameStop and Tesla, illustrate how options trading can move billions without traditional market triggers.
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Market Makers Impact Stocks
- Market makers are on the other side of 90% of option trades and are highly concentrated entities like Citadel and Susquehanna.
- Their exposure and hedging actions significantly impact underlying stock prices due to concentrated liquidity provision in options.
Delta Shows Hedge Ratios
- Delta measures how much an option's value changes per $1 change in the stock price and represents the hedge ratio for market makers.
- As stock prices move, deltas change dynamically requiring constant hedge adjustments by dealers.
GameStop Gamma Squeeze Example
- GameStop’s gamma squeeze showed how large call buying forced market makers to purchase millions of shares rapidly to hedge.
- This hedging created a feedback loop that drove the stock price sharply higher.