Option writer positioning: gamma, rotation and the pin
In the Indian index market the sell side writes options and the buy side pays for them. Retail buys premium; institutions and proprietary desks sell it. Almost everything worth knowing about how the index behaves intraday follows from what those writers are holding and what they have to do about it.
Writers are short calls and short puts, so their book is short gamma at every strike. Hedging a short-gamma book means buying as the index rises and selling as it falls — hedging runs with the move, all session. There is no level where that reverses. What changes is how much of that gamma sits close to spot, and which side the writers are rotating onto.
- Why open interest alone is not enough
- What gamma actually is
- From gamma to a rupee figure
- Why there is no gamma flip here
- Writer rotation: the signal that comes first
- The level where writers are flat
- The expected move, from the straddle
- Why indices pin to strikes at expiry
- What this can and cannot tell you
- See it live
Why open interest alone is not enough
An option chain will happily show you ten lakh contracts of open interest at a strike 800 points away. It looks important. It generates almost no hedging flow, because an option that far out of the money barely changes its exposure when the index moves fifty points.
Meanwhile a strike right at the money with a quarter of that open interest can force ten times the hedging. The difference is gamma, and it is the reason a raw open interest reading overstates far strikes and understates near ones.
What gamma actually is
Delta is how much an option's value moves for a one-point move in the index — effectively how much index exposure the option carries. Gamma is how fast that delta changes.
A writer who has sold options is short gamma: as the index rises, their position becomes progressively shorter, and they must buy index to stay flat. The further it rises, the more they must buy. That is not a choice; it is what staying hedged requires — and it is why a move that gets going tends to keep going.
Gamma is largest at the money and largest close to expiry. On a 0DTE NIFTY session, the gamma of the at-the-money strike in the last hour is enormous, which is exactly why those sessions behave the way they do.
From gamma to a rupee figure
Gamma on its own is a small decimal. It becomes meaningful when scaled by how many contracts exist and how big each one is:
| Term | What it contributes |
|---|---|
| Gamma | How fast exposure changes per point of index movement |
| Open interest | How many contracts are actually outstanding at that strike |
| Lot size | 75 for NIFTY, 20 for SENSEX — contracts to index units |
| Spot² ÷ 100 | Converts to rupees of delta per 1% move rather than per point |
The result is quoted in crore of delta per 1% move. The absolute number is large and grows sharply into expiry, so what is comparable between one day and the next is not the total but the share of it sitting near spot — the part actually forcing hedges right now.
Why there is no gamma flip here
Most gamma commentary comes from US index markets, where the convention is that the sell side is long calls and short puts — customers buy protection and sell upside. Under that split, call gamma and put gamma point opposite ways, they cancel somewhere, and that crossing is the famous "gamma flip level".
That split does not describe this market. Here the writer is short both sides. Short call gamma and short put gamma are the same sign, so they add rather than cancel — and a sum of same-signed terms never crosses zero. There is no flip level to find. Publishing one would mean quietly importing a positioning assumption from a different market.
The practical consequence is simple and, if anything, more useful: hedging amplifies moves in both directions, the whole session. You never get the mean-reverting, chop-and-fade regime that a positive-gamma environment produces. What varies is intensity, and intensity is measurable — the share of total gamma within half a percent of spot.
Writer rotation: the signal that comes first
Writers do not wait for a turn and then react. Ahead of one they do two things at once: they buy back the side they are short, and they write the other side. Both legs show up in open interest, and both show up before price has done anything interesting.
| What you see near the money | What it means |
|---|---|
| Call OI falling above spot and put OI rising below it | Writers covering upside risk and selling downside — setting up for a move up |
| Put OI falling below spot and call OI rising above it | Writers covering downside risk and selling upside — setting up for a move down |
| Both sides rising | Ordinary two-sided premium selling. Not a rotation; expect the range to hold |
| Both sides falling | Risk coming off the table — often before an event, or into expiry settlement |
The live page scores this on a scale of −100 to +100 as the balance between the two flows, over a rolling twenty minutes, across strikes within 2% of spot. Two things keep it honest. It reads only open-interest changes, so unlike a gamma split it assumes nothing about who holds what. And it requires the flow to be a real share of near-money open interest before it counts as a rotation — otherwise a chain drifting by a few hundred contracts would score 100 and mean nothing.
This is the one number on the page that claims to sit in front of a move rather than describe one already underway, which makes it the one most worth checking. Every past trigger is followed for an hour and scored as went-with or not, and that hit rate is published next to the live signal with the number of sessions it rests on.
The level where writers are flat
Add up the delta of everything the writers are short and you get a number that changes with the index: far below the chain the puts dominate and the book is long; far above, the calls dominate and it is short. Somewhere between, it is flat — no index hedge needed at all.
Above that level, the writers' hedge is long the index; below it, short. It is where their positioning is centred and where the least hedging is forced. It is not a support or resistance line, and the most common way to misuse it is to trade it as one.
The expected move, from the straddle
The cleanest number on the whole page needs no assumptions at all. An at-the-money straddle — one call plus one put at the nearest strike — is worth approximately:
straddle ≈ 0.7979 × spot × volatility × √time
Turn that around and the one standard deviation move to expiry is about 1.2533 × the straddle price. If the at-the-money straddle trades at ₹250, the option market is charging for a move of roughly ±313 points between now and expiry.
That is not a forecast. It is the price of the insurance, converted into points. Roughly two sessions in three should finish inside it, and the day's range will routinely exceed it even when the close does not — the figure describes the close, not the path.
Why indices pin to strikes at expiry
As expiry approaches, gamma concentrates violently into the strikes nearest spot. A pin projection is the gamma-weighted centre of the open interest near the money: each nearby strike weighted by the hedging flow it would generate, averaged.
The honest test of it is not whether it looks plausible but whether, from a fixed time of day, it lands closer to the close than simply assuming no further change. That comparison is measurable over recorded sessions, and it is published rather than asserted.
What this can and cannot tell you
Implied volatility is solved from the last traded price, so a stale or illiquid quote produces a bad vol and a bad gamma at that strike. Only the nearest expiry is included, which is most of the gamma on a weekly index but not all of it. Open interest is reported with a lag and moves through the day, so a reading from the morning is not a reading at 14:30. And on expiry day open interest collapses for mechanical reasons, which can look like a rotation when it is only settlement.
Positioning is also not prophecy. Writers are wrong regularly, and a rotation tells you what the people carrying the risk are preparing for — not what will happen. That is why every forward-looking figure on the live page carries a hit rate and a sample size, and prints "not enough history yet" rather than a percentage when the sample is too thin to mean anything.
See it live
The Market Edge page scores writer rotation live for NIFTY and SENSEX, plots the writers' short gamma strike by strike, draws their net delta against index level so the flat level is visible rather than asserted, and shows the expected move, the pin and the first-hour regime — each with the hit rate and sample size measured over the recorded history. For the raw positioning underneath it, the OI change chart shows the same chain without the gamma weighting, and the method page documents every formula.