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In this lesson, you’ll learn about the High Volatility Level (HVL), our third gamma level that acts as a critical transition zone signaling shifts in gamma regime from positive to negative or vice versa. The HVL is derived from the inflection point in the slope of the cumulative gamma exposure curve, which appears as a yellow curve on your charts.
Understanding the HVL is essential because it defines two distinct trading environments. Above the HVL, you’re in a positive gamma environment where dealers hedge against price movement, which helps stabilize price action and creates mean-reverting conditions. Below the HVL, you enter a negative gamma environment where dealers hedge with price movement, amplifying volatility and creating momentum-driven setups and breakout strategies.
The HVL functions as more than just a price level—it’s a sentiment indicator that tells you how price is likely to behave in the current gamma regime. When price trades above the HVL in a positive gamma regime, dealers are long gamma and their delta exposure changes slower. They sell as price rises and buy as price falls, creating a dampening effect that makes the HVL act as a magnet where price tends to pin. This environment is ideal for scalping and expecting short-term reversals with choppy market conditions.
When price breaks below the HVL, gamma flips negative and dealer behavior changes dramatically. In this short gamma regime, dealers sell when price falls and buy when price rises, creating a feedback loop that amplifies volatility. The HVL transforms from a pinning zone into a launchpad for directional moves, making momentum and trend-following setups dominate the market. Real examples from SPX show price chopping around the HVL during positive gamma days, and strong momentum breakdowns after breaking below the HVL.
You can use the HVL to adapt your strategy in real time, understand whether flow is likely to stabilize or accelerate, and apply it as a risk management tool. If you’re trading futures and see a flip from positive to negative gamma, this helps you adjust your strategy, adjust your hedges, and manage risk better with real-time movement.
Video Chapters
00:00 – Introduction to High Volatility Level (HVL)
00:52 – Positive vs negative gamma environments
01:55 – Why HVL is important as a sentiment indicator
02:38 – Positive gamma scenario: price pinning at HVL
03:37 – Breakdown scenario: volatility spike at HVL
05:27 – Using HVL as a regime compass
Key Takeaways
The HVL marks the transition between positive and negative gamma regimes, derived from the inflection point in the cumulative gamma exposure curve
Above the HVL, expect mean-reverting environments where price tends to pin, ideal for scalping strategies
Below the HVL, dealers create a feedback loop that amplifies volatility, making momentum and breakout strategies more effective
The HVL acts as both a sentiment indicator and risk management tool to help you adapt your trading strategy in real time
Video Transcription
[00:00:15.25] - Speaker 1 Now let's go into our third gamma level which is the high volatility level or hvl. The HVL is our transition zone and that signals a shift in gamma regime from positive to negative or vice versa is derived from the inflection point in the slope of the cumulative gamma exposure curve. So the, the yellow curve that you see there, that's when we see the inflection point. So what does that mean? Above the HVL we are in a positive gamma environment.
[00:00:52.04] - Speaker 1 So again a dealer hedge against price movement which really helps stabilize price action. Below the HVL we are in kind of like a negative GAM environment. And again dealers hedge with price movement amplifying volatility. So why does it matter? Because if the price is kind of like above the hvl, you are more likely to see mean reverting environment.
[00:01:15.25] - Speaker 1 If the price is below the hvl, you are more likely to see momentum driven setups, breakout strategies and so on. Traders can use the HVL level to adapt their strategy, understand if flow is likely to stabilize or accelerate and again use them as risk management tool as well. So why is the HVL so important? Because it's really like a sentiment indicator. It doesn't just tell you where the price may react, but it tells you how the price is likely to behave in the current gamma regime.
[00:01:55.16] - Speaker 1 So very, very important. So again, let's look at some scenarios as well on how you can use the hvl. So if we are in a positive gamma environment and price trades above the HVL, with a positive gamma regime, dealers are long gamma, which means that their debt exposure changes slower than if they were in a negative gamma environment. As a result they hedge against price movements, selling as price rises and buying as price falls. And this creates a dampening effect on price movement and this leads to a more stable mere reverting environment.
[00:02:38.14] - Speaker 1 So in this setup the HVL normally acts as a level where the price tend to pin. We're going to talk about pin risk, we always talk about it, especially when we are near expiration. So in these scenarios traders can expect really the market to chop and we can see maybe short term reversal, but the HVL really act as a magnet.
[00:03:09.16] - Speaker 1 This is an example that we took from I think yesterday or the day before where again the price on SPX was chopping all day around the HVL. In this case 0, it is level. So again you can use this as your scalping tool, as your risk management tool and, and again this is very, very Important, this is one, one scenario.
[00:03:37.28] - Speaker 1 All right. The second scenario, which is also very, very important is when we are in a breakdown plus a volatility spike at the HVL level. So below the H, DHVL gamma flips negative. So now dealers are starting to be in a short gamma environment or short gamma regime. So this changes our dealers behave.
[00:04:04.15] - Speaker 1 So they hedge with the price movement. So they sell when the price fall and they buy when the price rises. So this behavior creates a feedback loop that amplifies volatility instead of suppressing it. So as a result the HVL level becomes kind of like a launchpad for directional moves rather than a pinning zone. So when the price is below the hpl, traders should expect momentum and trend following setups to dominate the market.
[00:04:36.01] - Speaker 1 So again, why? Because dealer hedge with price increase in volatility and breakouts and directional moves are more likely. So that means that if the price drops, they sell more. If the price rises, they buy more. This creates a feedback loop and we're going to see an amplification of volatility.
[00:04:58.04] - Speaker 1 And that's when we see typical momentum days, breakouts and breakdowns. And again, this is a really good example that we, that we took from a few weeks ago. We break the HVL zodiat, we went straight down to the HVL and then we broke down again with a very, very strong momentum.
[00:05:27.06] - Speaker 1 All right, so this is very important. So this is a very key concept. So HVL or the hybrid level isn't just a level, it's a regime compass. It helps you choose the right type of trade for the current environment. So again, if you are trading futures and you see that we are flipping from positive to negative gamma, then again that could mean a lot.
[00:05:47.27] - Speaker 1 And that could also help you adjust your strategy, adjust your hedges and basically and basically manage your risk better with real time movement.
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