What is dealer hedging and why should you care?
Every level on an options map rests on one assumption: that dealers hedge, and that their hedging is forced rather than discretionary. It is worth understanding why that assumption is reasonable — and where it stops being reliable.
Why dealers hedge at all
A market maker's business is the spread, not the direction. Selling you a call leaves them short a directional position they never wanted, so they buy stock to neutralise it. That is delta hedging, and it is continuous rather than a one-time trade.
Because their inventory changes as price moves, the hedge has to be maintained. That maintenance is the flow that shows up in the tape.
Why it is estimable but not certain
Open interest is public; who is long and who is short is not. Every dealer-positioning model makes an assumption about which side of each strike the dealer sits on — typically that customers buy calls and puts, leaving dealers short both.
That assumption is reasonable in aggregate and wrong in specific cases. It is the main reason two platforms can compute different walls from identical data, and a good reason to treat any single level as an estimate.
Where the model gets weakest
Thin names with little open interest produce noisy maps. So do days where a single large trade dominates the board, and periods just after expiry when positioning has rolled off but not yet rebuilt.
The honest posture is to treat dealer positioning as one strong input describing how the market is likely to behave, rather than as a set of lines price is obliged to respect.
Dealer hedging is mechanical and real, which is why positioning shows up in price. The side of each trade is inferred, which is why every level is an estimate.
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See it on a live board
FlowMonkey prices every level by whether your ticker can actually reach it today — measured on that symbol's own range, re-sorted as the session burns down.
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