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July OpEx and GEX Profile as a Potential Driver for Market Instability Events

Usually, market participants buy puts and sell calls. Dealer flows indicate market participants are buying calls and selling puts or not hedging downside. There is more upside hedging than downside. Put buying is low.

As expiration approaches July OpEx, the effects of gamma will increase more and more. June contracts will expire and dealer long vol positions will be removed. Dealers continue to pick up short vol as the market melts up. There is almost no long gamma across the July OpEx. This could change if market participants go from long vol to short vol which would force dealers to pick up long vol for July.

We have two possible events:

(1) Market participants change their behavior and start buying puts and selling calls. Dealers would pick up long gamma and we could more easily transfer into a spot up/vol down regime.

(2) Dealers stay short vol across the board while market participants are long vol. Dealers will be buying rips and selling dips. We could see some real market movement in July as most people expect vol compression.

This looks like a potential setup to catch a lot of players offsides.