Have seen this being done for years (primarily by J.P. Morgan and a couple other bank research desks) and am attempting to re-create for my own personal research. I’ve read the forums on here but no one has seemed to crack the code yet; here’s what I have thus far —

I calculated the dollar gamma for each SPX call and put option expiring over the next few weeks by taking 100 * open interest * gamma * spot^2 / 100 and aggregated by SPX strike level (in this case, per every $50 strike — 2650, 2600, 2550, etc.). I then subtracted the dollar call gamma from the dollar put gamma for each strike to generate the ‘P-C imbalance.’

So in essence I now have the current net dollar gamma exposure for all weekly/regular expiration options by strike but am unaware as to how to get something even close to the picture attached. What I get is a normal distribution-type graph (i.e. most gamma centered around the ATM strike) which makes sense since the highest gamma is going to be near the ATM strike with generally a large open interest.

Can anyone help me out here? Is there perhaps some weighting scheme I’m failing to incorporate? Do I need access to dealer data to even conduct this analysis?

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  • $\begingroup$ Why do you subtract the call gamma from the put gamma? If you want total gamma should t you be adding them up ? $\endgroup$ – dm63 Jun 4 at 20:30
  • $\begingroup$ I tried calculating this myself. I get the general trend of the chart right but my aggregate gamma values are too small. I filtered for options with 75%-125% moneyness on SPX, calculated the aggregate $-gamma per contract using unitGamma * contractMultiplier * underlyingPrice * openInterest (example: 0.0713 * 100 * 2843.49 * 86212 = 1'747'869'304). Then sum up the strike buckets and take the difference between Puts and Calls. If I use your formula gives me values way too high. Could anyone comment on the methodology? $\endgroup$ – oronimbus Jun 7 at 15:17
  • $\begingroup$ open interest you have is positions of all traders, not just dealers. their research is calculating for only dealers. I know I'm not helping but yes you are missing a few steps of calculations here. $\endgroup$ – user43153 Nov 1 at 16:01

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