Reading the Premarket Gamma Flip: Overnight Regime Carryover

Summary. Dealer positioning levels computed at the close remain informative at the next open because open interest is fixed between daily updates. This article shows how much the gamma flip moves overnight when only time and implied volatility change, explains what does and does not trade overnight, and identifies the situations in which yesterday's levels mislead: overnight gaps across the flip, large single-stock news, and expiration days.

1. What changes overnight and what does not

Gamma exposure depends on four inputs: open interest, spot, implied volatility and time to expiry. Their overnight behavior differs:

• Open interest is reported once per trading day by the Options Clearing Corporation [1]. Between reports, the positioning input is fixed.
• Spot keeps moving. E-mini S&P 500 futures trade nearly 24 hours a day [2], and SPX options themselves trade during Cboe's Global Trading Hours, which run from 8:15 p.m. to 9:25 a.m. ET [3]. Overnight option trades change positions, but they are not reflected in open interest until the next report.
• Implied volatility moves with overnight news and with option trading in Global Trading Hours.
• Time passes: one trading day for a weeknight, and a weekend for Friday to Monday.

The flip is a function of all four. Holding open interest fixed, it is still recomputed for a new time to expiry and new implied volatility.

2. How much the flip moves on its own

Figure 1 recomputes the flip for the hypothetical chain used in this series under two overnight changes: one trading day less to every expiry, and a four-point rise in implied volatility. The level moves by only a few index points in each case, from about 5,966.5 at the close to about 5,969.7 after one day of decay and about 5,965.7 after the volatility rise.

The result depends on the chain, but the pattern is general: when positioning is unchanged, the flip is stable relative to typical overnight moves in spot. What changes is the location of spot relative to the flip. That is why the overnight question is usually "which side of yesterday's flip will the market open on?" rather than "where is the flip now?"

3. Mechanics at the open

If the cash session opens with spot above the flip, dealer hedging at the open is of the long-gamma type. An overnight move then tends to meet hedging flow against it once regular-hours liquidity arrives. If spot opens below the flip, the hedging flow adds to the move. The volatility consequences of each regime are covered in reading the gamma flip.

A useful measure is the distance from the overnight price to the flip relative to the expected daily move:

With implied volatility of 16% and SPX at 6,000, one expected daily move is about 60 points. A futures-implied open 15 points above the flip ($z\approx 0.25$) is close to the boundary; one 90 points above ($z\approx 1.5$) is firmly in the long-gamma regime.

4. When yesterday's map misleads

4.1 An overnight gap across the flip

A weekend headline or an overnight macro surprise can move futures through the flip with no change in reported open interest. The map still shows the same flip, but spot is now on the other side, so the opening hedge flow is of the opposite type. These opens can be volatile because the adjustment happens all at once when cash liquidity arrives.

Figure 2 gives an example on the hypothetical chain. A close at 6,020 sits in long gamma, with dealers holding about +$5.5 billion of GEX per 1%. An overnight decline to 5,935 puts the open at roughly −$3.2 billion, on the other side of the flip, without any change in reported positions.

4.2 Large single-stock news

Earnings from the largest index members, released after the close, can move the index by a meaningful amount through the component channel alone. The SPX map is unchanged, but the index can open on the other side of the flip.

4.3 Expiration days

On expiration days the chain changes sharply. Monthly SPX options settle on the morning opening print, while SPXW contracts settle at the close [4]. After an expiration the expiring open interest disappears from the next report. A map computed before the expiration overstates positioning that no longer exists; the first post-expiration report is the relevant one.

5. A pre-open routine

1. Note the last reported flip, walls and volatility trigger, and the date of the open interest they use.
2. Compute the distance from futures (adjusted for the basis) to the flip in expected-move units.
3. Check the calendar for releases before the open and for expirations.
4. After the first open interest update of the day, recompute and compare. Large changes indicate heavy positioning on the prior day.

6. Session-to-session carryover

The same reasoning applies on every weeknight. Because open interest accumulates gradually outside expirations, a series of daily flips usually drifts rather than jumps. Days with large changes tend to follow heavy option activity such as expirations, FOMC decisions and earnings clusters. Tracking that series shows whether the regime boundary is moving toward or away from spot.

For educational and informational purposes only. Not financial advice. Options and futures trading involve substantial risk of loss. Figures use a hypothetical option chain and the Black-Scholes model.

References

1. The Options Clearing Corporation. Volume and open interest reports. www.theocc.com/market-data/market-data-reports/volume-and-open-interest
2. CME Group. E-mini S&P 500 futures contract specifications. www.cmegroup.com/markets/equities/sp/e-mini-sandp500.contractSpecs.html
3. Cboe Global Markets. (2021). Cboe to extend Global Trading Hours for VIX and SPX options to nearly 24 hours. Press release. ir.cboe.com/news/news-details/2021/Cboe-to-Extend-Global-Trading-Hours-for-VIX-and-SPX-Options-to-Nearly-24-Hours-Beginning-November-21-2021-06-15-2021/default.aspx
4. Cboe Global Markets. S&P 500 Index options (SPX, SPXW) product specifications. www.cboe.com/tradable_products/sp_500/spx_options/specifications/