Research Library

Option market makers aim to run delta-neutral books, so their hedging trades follow mechanically from the options they hold.

When traders buy calls that dealers are short, dealers buy the underlying to hedge. As spot rises, the calls' delta climbs toward 1 and dealers must keep buying — a gamma-driven loop that can accelerate a move. The size of that effect depends on how much gamma sits near spot, which is what dealer gamma exposure (GEX) estimates.

Dealer positions are not published. Arkenwell's GEX is a model estimate from open interest and an assumed dealer side, and is labelled as such.

Near expiry, the underlying sometimes settles close to a strike with large open interest. One explanation is dealer hedging driven by second-order Greeks.

Charm moves option delta toward 0 or 1 as time passes; vanna moves it as implied volatility changes. Both force dealers to adjust their hedges even when spot is still, and when dealers are long gamma around a strike those adjustments lean against moves away from it.

This is a mechanism, not a guarantee: pinning fails whenever directional flow outweighs the hedging.

NIFTY weekly options are among the most traded derivatives in India, and they expire every Tuesday. Open interest concentrates in the front week, so dealer hedging around a few strikes matters most in the final sessions.

On expiry day, watch where open interest is largest relative to spot, whether dealers are estimated long or short gamma there, and how fast premium is decaying. Those three together describe whether a pin is plausible or a break is more likely.

Expiry-day moves can also gap through these levels; no strike is a guaranteed floor or ceiling.

BANKNIFTY is dominated by a small number of large private banks, so news about one or two of them moves the whole index. It is typically more volatile than NIFTY.

Credit or macro stress in the financial sector tends to show first as rising implied volatility in out-of-the-money puts — a steeper put skew.

Arkenwell's Volatility desk shows the smile, 25-delta skew and term structure per expiry, so a skew change can be compared with the index's own recent range.

Scheduled events such as the Union Budget carry uncertainty that options price in advance: implied volatility on short-dated NIFTY options usually rises into the announcement.

Once the policy details are public, that uncertainty is resolved and implied volatility often falls quickly — the "IV crush". Option premium can drop even if the index moves.

Whether the crush outweighs the move is different every year; the size of the move relative to what options were pricing is what decides it.

On expiry day, at-the-money options have very high gamma: a small move in spot changes their delta a lot. Dealers who are short those options must rehedge far more often than earlier in the week.

When dealers are short gamma near spot, their hedging follows the move and can extend it; when they are long gamma, it leans against the move. Which side applies depends on positioning, and it can flip during the day as spot crosses strikes.

This is why expiry afternoons can either pin tightly or trend hard. Arkenwell's dealer desks show the estimated gamma profile so you can see which regime spot is in.

Pair trading needs a hedge ratio between two related instruments. A static OLS regression fixes that ratio from one historical window, so it goes stale when the relationship shifts.

A Kalman filter treats the ratio as a hidden state and updates it with every new observation, weighing each update by how noisy the data has been. The spread and its z-score are then measured against the current ratio, not a historical one.

The trade-off is responsiveness against noise: a filter that adapts too fast follows every wiggle. Arkenwell's Kalman engine tracks each of its spreads with a live beta (the hedge ratio), z-score, half-life and confidence; it does not publish backtest returns.