Derivative Mechanics Reshape Market Structure as Gamma Flows Dominate Price Action
The meme stock phenomenon of 2020-2021 revealed a fundamental market truth: derivative hedging flows now drive asset prices more than traditional valuation metrics. GameStop's gamma squeeze demonstrated how options market mechanics can force violent corrections in underlying securities.
For institutional players, mastering second-order greek exposures has become essential for alpha generation. The convexity relationship between delta hedging and gamma positioning creates predictable volatility windows that sophisticated traders exploit.
Dealer positioning books now act as amplifiers rather than dampeners of market moves. When dealers are short gamma - as occurs during momentum surges - their hedging flows accelerate rather than mitigate price movements.
