Dealer hedging and dealer positioning

Why dealers hedge at all

Market makers provide liquidity in options and generally do not want directional exposure. When they take on inventory, they offset the resulting delta in the underlying, and they re-hedge as the underlying moves and as time and volatility change the option's sensitivity.

That re-hedging is largely mechanical. It is not a view on price, which is exactly why it produces repeatable behaviour around areas of concentrated exposure.

Where the flow becomes visible

Hedging pressure concentrates where open interest concentrates. Around heavily traded strikes, dealer activity can slow momentum, hold a range together into an expiry, or accelerate a move once exposure thins out beyond the cluster.

• Concentrated exposure often behaves like a magnet or a wall intraday.
• Thin exposure between clusters is where fast, low-resistance moves happen.
• Expiry removes exposure, which is why behaviour can change abruptly after a roll.

What positioning does not tell you

Positioning describes conditional behaviour: what is likely if price arrives somewhere. It does not tell you whether price will arrive, and it says nothing about news, macro releases or liquidity shocks that overwhelm hedging flow.