Explain the Concept of a “Negative Gamma” Scenario for Market Makers

A market maker is "negative gamma" when their overall options portfolio is net short options. In this state, as the underlying price moves up, their Delta becomes more positive, requiring them to sell the underlying to re-hedge.

As the price moves down, their Delta becomes more negative, requiring them to buy. This counter-trend trading provides liquidity but can accelerate a price move if they cannot execute the hedge fast enough.