I'm trying to confirm that I'm understanding this concept correctly: dealer gamma exposure. I can make sense of dealers / gamma in isolation:
- Dealers: make markets for certain securities, notching the bid/ask spread in profit. Inventories can be positive or negative, possibly based on assessments of adverse selection.
- Gamma: change of change
But putting the two together is a struggle for me. Perhaps a worked-out example might help.
Suppose dealer gamma exposure for S&P 500 index futures is -.5. Since dealers take the other side of the trade, then that would mean the buyside is net long index futures, but whether thats by the same amount, I'm not sure.
Since a large portion of the buyside is institutional, conservative strategies, then being net long index futures is likely a hedge for selling equities from their portfolio, I'm thinking out loud.