# Dealers Short Puts, Long Calls: The GEX Sign Assumption Source: SquawkFlow URL: https://squawkflow.com/learn/dealers-short-puts-long-calls Category: Market Structure Published: 2026-10-30 Type: Explainer > Why gamma exposure models assume dealers are short puts and long calls, what the research supports, where it breaks, and how to test it. --- ## The short answer "Dealers short puts, long calls" is the positioning convention behind almost every public gamma exposure (GEX) number. It says that, across the options chain, the market makers on the other side of customer trades hold the puts customers bought and the calls customers sold. Under that convention, call gamma is counted as positive for dealers and put gamma as negative, and net GEX is the difference. It is an assumption, not an observation. No public dataset records which side of a contract a dealer holds. Open interest is published once a day and counts contracts that exist, not who owns them. Every GEX chart, ours included, is therefore a model of dealer inventory built on top of this prior. This article covers where the convention comes from, what the academic evidence says about each leg, how far the answer moves when the convention is wrong, and how to check it against the tape. ## Where the convention comes from The convention starts with the customer, because a dealer's book is the mirror image of customer demand. Two customer habits are assumed to dominate index options. **Customers buy puts for protection.** Portfolio managers holding long stock buy index puts to cap losses. The dealer who sells them those puts ends up short puts. **Customers sell calls for income.** Covered call writers and collar trades (long stock, long put, short call) sell upside calls. The dealer who buys those calls ends up long calls. Put the two together and the dealer is short puts and long calls. That framing matches the one in our [dealer positioning guide](/learn/dealer-positioning-guide), which uses it as the default for index products. ## How each leg gets hedged A dealer runs delta neutral, so the hedge direction follows from the position, not from whether the contract is a call or a put. Here is what each leg of the convention implies. **Dealer long calls.** A long call has positive delta, so the dealer shorts the underlying to neutralize it. As price rises, call delta grows, the position gets longer, and the dealer sells more of the underlying. As price falls, delta shrinks and the dealer buys some back. Selling into rallies and buying into dips is long gamma behavior, which leans against moves. **Dealer short puts.** A short put has positive delta from the dealer's side, so again the hedge is short the underlying. As price falls, the put moves toward the money, its delta (from the dealer's side) grows, and the dealer sells more to stay neutral. As price rises, the hedge is bought back. Selling into declines and buying into rallies is short gamma behavior, which adds to moves. The two legs push in opposite directions. Which one is larger at a given spot price sets the sign of net dealer gamma. That is why the put leg matters so much: under the convention, heavy put open interest below spot is what produces negative gamma, and the put wall is read as the strike where that selling is most concentrated. ## What the research says about each leg The convention is often stated as fact. The best primary evidence supports it for index options, with one leg far stronger than the other, and contradicts it for single stocks. **The put leg has strong support for index options.** Garleanu, Pedersen and Poteshman, in [Demand-Based Option Pricing](https://www.nber.org/papers/w11843) (Review of Financial Studies, 2009), used data that identified trades by customer type over 1996 to 2001. Average daily net demand for index puts from non-market makers was 124,345 contracts: end users were heavy net buyers, concentrated in out-of-the-money puts. Because options are in zero net supply, dealers were net short them. That is the "dealers short puts" half, and the paper ties it to why index puts look expensive and to the shape of the volatility smirk. **The call leg holds, but it is much smaller.** The same data show end users were net sellers of index calls: average daily net demand of minus 21,091 contracts from non-market makers and minus 45,966 from public customers. The authors summarize it as end users supplying on the order of 30,000 call contracts a day, which leaves dealers net long index calls on average, which matches the covered call and collar story. The caveat is size and scope. The put demand was several times the call supply, so the put leg dominates the index book, and these are averages from one sample period that can flip at particular strikes or in particular years. **Single stocks run the other way on average.** Garleanu, Pedersen and Poteshman also found end users are net short single-stock options, the reverse of the index result. An average dealer in single-name options is therefore closer to long options, and long gamma, than the index convention implies. The average hides episodes where it flips hard: concentrated retail call buying in a single name leaves dealers short calls, which is the setup described in our [gamma squeeze explainer](/learn/gamma-squeeze-explained). **Hedging does move prices.** Ni, Pearson, Poteshman and White, in [Does Option Trading Have a Pervasive Impact on Underlying Stock Prices?](https://econpapers.repec.org/RePEc:oup:rfinst:v:34:y:2021:i:4:p:1952-1986.) (Review of Financial Studies, 2021), report evidence that option market maker hedge rebalancing affects stock return volatility and the probability of large price moves. That is why the sign question is worth the trouble: if the hedging channel is real, getting its direction wrong matters. ## How much the answer moves if the convention is wrong The sensitivity is easiest to see on a toy book. Use the per-$1 form from [how to calculate gamma exposure](/learn/how-to-calculate-gamma-exposure): gamma times open interest times the 100-share multiplier times spot. Assume spot at 500 and two strikes. - A 510 call with gamma 0.010 and open interest 10,000: `0.010 × 10,000 × 100 × 500 = 5,000,000`, or $5.0M per $1 move. - A 490 put with gamma 0.012 and open interest 12,000: `0.012 × 12,000 × 100 × 500 = 7,200,000`, or $7.2M per $1 move. Now read the same two strikes under four positioning stories. 1. **Convention (dealer long calls, short puts):** +$5.0M minus $7.2M = **minus $2.2M**. Negative gamma, the "moves extend" reading. 2. **Customers sold the puts instead (dealer long both):** +$5.0M plus $7.2M = **+$12.2M**. Strongly positive gamma, the "moves get absorbed" reading. 3. **Customers bought the calls instead (dealer short both):** minus $5.0M minus $7.2M = **minus $12.2M**. Deeply negative. 4. **Half the put open interest was customer-sold:** the dealer is short 6,000 puts and long 6,000, so the put leg nets to zero and the book reads **+$5.0M**. Positive gamma. The fourth line is the one to sit with. Misreading half of one strike is enough to flip the regime label, and real chains have dozens of strikes where the split is unknown. The arithmetic is exact; the positioning input is the guess. A flip level or wall drawn from a mis-signed strike describes a hedge that does not exist. ## Why the data cannot settle it Three facts about public options data keep the convention an assumption. **Open interest has no owner field.** It counts open contracts at the end of each session and says nothing about who is long. Settled figures appear before the next session opens, so intraday positions are always an estimate. **Trades carry no open or close flag in public data.** A trade can open a new position or close an old one, and the tape does not say which. The best public proxy is the next day's change in open interest, covered in [change in open interest](/learn/change-in-open-interest-options). **Trade side is inferred, not reported.** Classifying a trade as customer-bought or customer-sold means comparing its price with the quote at that moment, and trades at the midpoint stay ambiguous. [How to tell if an option was bought or sold](/learn/how-to-tell-if-an-option-was-bought-or-sold) walks through the method and its limits. So even a model that signs trades one by one instead of using the blanket convention is still inferring. It swaps one assumption for several smaller ones. ## How to test the assumption yourself You cannot observe dealer books, but you can check whether the convention is behaving at the strikes that matter. 1. **Check who opened the size.** For a strike that dominates the profile, look at the session when its open interest grew. If the volume that day traded mostly at the ask on calls, customers were buying, and the dealer is more likely short those calls than long. 2. **Separate index from single names.** Treat the convention as a reasonable prior on broad index products and a weak one on single stocks, especially around earnings or when call volume spikes in one name. 3. **Watch the tape against the label.** A negative gamma reading should come with failed fades and ranges that widen through the session. If the model says negative gamma and price mean-reverts cleanly all day, the positioning input is likely stale or mis-signed. [Negative gamma explained](/learn/negative-gamma-explained) describes that signature. 4. **Prefer models that disclose their sign rule.** A chart that does not say how it signs calls and puts gives you no way to know which of the four stories above it is telling. ## How SquawkFlow uses it Our SPX GEX page applies the convention in its standard form: call gamma positive and put gamma negative, applied to settled open interest. We treat the result as a model of dealer hedging pressure, not a reading of anyone's book, and we label the regime neutral inside a band around zero because a small net total sits inside the model's own error. The zero gamma level is the price where that modeled total changes sign, and it inherits every assumption above. The useful mindset is the same one you would bring to any model: know which input is measured and which is guessed. Here, gamma and open interest are measured. The sign is guessed, and the guess is well grounded for index options, strongest on the put side, and weak for single stocks. *Educational content, not financial advice. See our [risk disclosure](/risk-disclosure).* --- ## Citation Source: SquawkFlow, https://squawkflow.com/learn/dealers-short-puts-long-calls Retrieved: 2026-10-30 16:18 ET Attribution: cite the page URL rather than a copied number. Levels are recomputed every session, so a number without its date is wrong within a day. SquawkFlow publishes market-structure data and education. Nothing here is investment advice, a price target or a recommendation, and we have no order execution.