The Psychology of Gamma Exposure: Why Crowded Strikes Magnetize Price

Why does price so often gravitate toward round numbers or heavily traded strikes as option expiration approaches? The answer isn't mystical—it's rooted in crowd psychology and the mechanics of dealer hedging. In this article we'll explore how trader behaviour around "crowded strikes" combines with gamma exposure (GEX) to create powerful price magnets.

Crowded Strikes: The Human Element

A crowded strike is simply a price level where open interest balloons because many traders pile into the same contracts. Round numbers (“SPY 500”, “AAPL 200”) are typical landmarks. The motivation can be psychological (“nice even number”), strategic (hedging a portfolio), or purely speculative. Regardless of intent, the crowd creates a large pool of contracts that dealers must hedge.

Dealer Hedging and the Gamma Loop

Dealers who are short options at a crowded strike carry gamma risk. As the underlying price moves, their delta exposure changes rapidly. To stay neutral they buy or sell shares, amplifying the very move they are hedging. Near a positive-gamma strike this buying on dips / selling on rips can pin the price. When gamma turns negative, the feedback is destabilising, potentially accelerating moves toward (or away from) the strike.

The Feedback Flywheel

• Traders concentrate flow at a strike → open interest spikes.
• Gamma exposure rises for dealers → requires dynamic hedging.
• Hedging flow impacts price → price drifts toward strike.
• Success reinforces belief → even more contracts traded at the strike next cycle.

The loop can persist for weeks, only releasing after a major catalyst or after option expiration — when OI clears and dealers unwind hedges.

Historical Example: AAPL $200 Pin

In the July 2024 expiration cycle, AAPL spent the final trading hours oscillating within 50 cents of the $200 strike. The GEX Screener showed a towering positive gamma wall at that level, while open interest exceeded 200 k contracts. Dealer hedging supplied consistent liquidity, keeping price glued to the magnet until the closing bell.

Practical Takeaways

• Use the Options → Total Gamma filter to surface the largest positive/negative walls.
• Look for clusters of OI plus high absolute GEX values near round numbers.
• Pin risk increases into monthly OPEX; be cautious with breakout trades until after expiration.
• If positioning flips from positive to negative gamma, be prepared for increased volatility.

Ready to hunt for the next gamma magnet? Launch the GEX Screener and explore the latest crowded strikes.