I want to test a hypothesis about using gamma to predict FX movements.

Suppose that market makers will seek to be delta neutral given their portfolio of FX options. At any given time, market makers in the interbank market will be either long or short gamma in the aggregate for their portfolios of FX options. If they are long gamma, market makers as a whole will delta hedge by engaging in strategies such as continuously buying the spot when it is low and selling it when it rises, meaning the spot range will operate in a relatively tight band. The opposite will hold if market makers are net short gamma, with the spot swinging widely.

If I have access only to public information (eg anything on Bloomberg Terminal) how can I identify whether market makers are long or short gamma for FX options in order to test this hypothesis?


If I understand your question, you are looking to find what is the overall position of each option for all market makers. I don't think this information is available for free in Bloomberg. It may be available in some specific vendors: I remember to purchase this exact information for Apple options, but I don't think it was available for FX options in the vendor that I purchase it to.

If your hypothesis is that the gamma hedging is having an impact in the underlying, a starting point could be to compare the total notional of the open interests with the daily trading volume (in notional terms) of the underlying. If this ratio is high the probability of market impact of the gamma hedging increases. The initial study can lead you to select the FX pairs with the highest value of this ratio. Once you have it, I recommend you to research different vendors to see if that data is available.

  • $\begingroup$ @beeba If you want more help, feel free to contact me. I have done that study before. My email: mnl1000 ad gmail dot com $\endgroup$ – Escachator Mar 8 '16 at 16:22

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