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In this lesson, you’ll learn how to identify and interpret the put support level, a critical zone where dealers face maximum put gamma exposure and implement heavy hedging strategies. Understanding this level helps you anticipate potential price bounces or breakdown scenarios based on options market mechanics rather than traditional price history.
The put support represents the strike with the highest net put gamma exposure, appearing as the widest red bar in our net gamma exposure chart. As price moves down toward this level, dealers who are short gamma must sell the underlying asset or futures to stay delta neutral. When price approaches these strikes, put holders may monetize their positions by closing puts and taking profits, which forces dealers to unwind their hedges by buying back the underlying asset, creating significant buying pressure.
This hedging behavior creates a structural floor where prices often bounce because dealer buying pressure counteracts the downward momentum. When puts are closed at the support level, dealers release their short positions by buying, which reduces selling pressure and can trigger a reversal to the upside. The lesson includes a practical example showing how price dropped to put support, retested the level, and then bounced back upward.
However, put support can also become an inflection point during strong breakdowns. In bearish markets, traders may roll their put contracts to lower strikes instead of closing them, creating new put open interest below the current support level. This forces dealers to hedge new put exposure by selling more of the underlying, adding mechanical selling pressure. When the market enters a negative gamma environment without buying flow at put support, prices can move down very fast, and the broken put support becomes resistance rather than support.
Video Chapters
00:15 – Introduction to put support and net put gamma exposure
00:46 – How dealers hedge at put support levels
02:20 – Scenario one: Price bounce at put support
04:31 – Scenario two: Strong breakdown of put support
05:40 – Negative gamma environment and selling pressure
Key Takeaways
Put support is the strike with the highest net put gamma exposure, shown as the widest red bar in the net gamma exposure chart
When price approaches put support, dealers unwind short hedges by buying, creating a structural floor where prices often bounce
In bearish markets, traders may roll puts to lower strikes, causing put support to break and become resistance
Breakdown of put support in a negative gamma environment can trigger fast downward moves due to mechanical selling pressure
Video Transcription
[00:00:15.01] - Speaker 1 Now we can move to the next level. So we're looking at our put support. The put support again on the opposite side is the strike with the highest net put gamma exposure. So it tells us a zone where dealers are mostly exposed to puts and are likely to hedge heavily as the price approaches those areas. In our net gamma exposure chart, the put support is shown as the widest red bar as you can see here.
[00:00:46.17] - Speaker 1 And it really indicates the highest level where we see the highest net put gamma at a particular strike. So why is it important and how can we look at this level? So as the price moves down towards the put support, dealers who are now short gamma due to a lot of like put activity must sell the underlying to stay delta neutral. But when the price approaches these strikes, put holders or put investors might also monetize those positions. So as puts are closed and profit is taken from investors, dealer also can unwind their hedges so they don't have to keep those edges up any longer.
[00:01:31.08] - Speaker 1 And this creates also a lot of buying pressure. So it often causes the price to bounce. But if we are in a weak market again another scenario and we're going to look at that into details. Traders may roll their puts at lower strike. So shifting the put support down so dealer actually begin to hedge lower.
[00:01:50.19] - Speaker 1 And then again this increases the selling pressure. So whenever we break put support level we typically see a strong move to the downside due to this kind of like market mechanics happening. So the put support for us is a structural floor is not based on price history, but it's based on where the hedging behavior builds up and it unwinds. So we can look at it. The reason why we call it support is because is a floor that we have where the market should potentially bounce.
[00:02:20.27] - Speaker 1 But again there's different use cases there. So the first scenario and we're going to walk through again two probable scenario on what could happen at the put support level is really in this case dealer are short puts. And dealers who sold puts are also now short gamma and they're hedging their exposure by selling the underlying asset or futures as the price drops. If you are, if we have put holders they also might start to monetize their puts. They must, they might start closing their put.
[00:02:57.03] - Speaker 1 So as the price approaches the put support put order begin monetizing closing their positions. And and then of course market makers do not need to hedge any longer. So they basically release those shorts by buying back the underlying asset or the futures that they had to cover those shorts. So the dealer again they unwind the short they start buying. So as the puts are closed, this buying pressure really can create a floor or a ceiling to the downside.
[00:03:29.23] - Speaker 1 But at the same time we need to also understand the flow. And if we are shifting from selling to buying, so again the net effect is really a reverse of the other flow. So if the dealers are starting to buying back those shorts, then again we could see a lower selling pressure and we could see basically, you know, we can start seeing buying pressure again. And that, that's why we call it put support. So that's why the price kind of bounced back on this floor.
[00:04:08.12] - Speaker 1 Those are the things again simplified how you should be looking at the put support when we're looking at the bounce. And then we can actually see an example here. This is an old example on when the price dropped, rich put support retested the level and then kind of bounced back to the upside.
[00:04:31.25] - Speaker 1 And please send any question you might have the put support. This is a second scenario. We can actually see a strong breakdown of put support and that's when put support becomes an inflection point. So what is happening here when the price drops toward the put support, if a trader or if the market is really bearish on an asset that they actually might not monetize those puts, but they might actually roll those contracts to lower strikes to maintain their downside exposure. And again this creates a new put open interest below our current put support level.
[00:05:11.04] - Speaker 1 And of course this implies that dealers need to hedge those new put exposure and they need to hedge by again selling more of the underlying asset or futures. And again this adds a lot of mechanical selling pressure into the market as new boots are also open. We're actually going more in a negative gamma environment. And again we know what happens in negative gamma. Dealers are selling when the market goes down.
[00:05:40.16] - Speaker 1 So again that could actually cause more sell impression. Also, if we don't see any buy and flow activity coming in at the put support, that means that there is not a lot of structure that can actually support the bounce. So that's why we, we often see triggers for trend continuation. And that's why the price can actually move down very, very fast.
[00:06:09.19] - Speaker 1 Again, this is, this is another very, very simple breakdown on what could happen when we are in a breakdown of put support. And again, this is another example of S P. This is a no side that we have. But we broke put support and now the put support becomes a resistance, no, no longer a support.
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