Why Dealers End Up Short Puts (and What It Does to the Floor)
One structural fact explains a surprising amount of the dealer map: the market is a net buyer of protection, so dealers are net short puts — and that ripples everywhere.
Portfolios need downside protection, and the cleanest way to buy it is puts. Funds, institutions, and hedgers are persistent buyers of puts, which means someone is the persistent seller. That someone is dealers. Being structurally short puts shapes several things you trade around.
The put wall and the floor
Because dealers are short puts concentrated at popular protection strikes, they hold heavy gamma there, and hedging it (in positive gamma) means buying dips into those strikes. That's the mechanical support behind the put wall: the floor is dealers hedging their short puts. It also means a decisive break of that wall is dangerous, because below the flip the same short-put position accelerates the decline.
The skew
Constant put demand is also why puts are structurally more expensive than equidistant calls — the persistent volatility skew. The short-put position and the skew are two faces of the same protection-buying flow.
The floor under SPY on a calm day is largely dealers hedging the puts they're short. That's also why it fails so fast when it breaks.
Vanna and the grind
Finally, being short puts is what powers vanna rallies: when VIX falls, the delta of those short puts shrinks, leaving dealers under-hedged, so they buy — the mechanical bid behind so many newsless grind-up days. The put wall, the skew, and the vanna grind all trace back to this one structural position. Reading it is a shortcut to reading half the map — and it's the standard positioning assumption that GEX is built on.
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