Inferring Latent Market Forces: Evaluating LLM Detection of Gamma Exposure Patterns via Obfuscation Testing
On the map: LLM reasoning → Reasoning for agents, planning and code
Abstract (arXiv)
We introduce obfuscation testing, a novel methodology for validating whether large language models detect structural market patterns through causal reasoning rather than temporal association. Testing three dealer hedging constraint patterns (gamma positioning, stock pinning, 0DTE hedging) on 242 trading days (95.6% coverage) of S&P 500 options data, we find LLMs achieve 71.5% detection rate using unbiased prompts that provide only raw gamma exposure values without regime labels or temporal context. The WHO-WHOM-WHAT causal framework forces models to identify the economic actors (dealers), affected parties (directional traders), and structural mechanisms (forced hedging) underlying observed market dynamics. Critically, detection accuracy (91.2%) remains stable even as economic profitability varies quarterly, demonstrating that models identify structural constraints rather than profitable patterns. When prompted with regime labels, detection increases to 100%, but the 71.5% unbiased rate validates genuine pattern recognition. Our findings suggest LLMs possess emergent capabilities for detecting complex financial mechanisms through pure structural reasoning, with implications for systematic strategy development, risk management, and our understanding of how transformer architectures process financial market dynamics.
Key facts. No citing papers in the map yet (data through 14 Oct 2026). Placed in Reasoning for agents, planning and code, one of 17 directions in LLM reasoning. Builds on 3 of its 17 references that are in the map. First posted on arXiv 8 Dec 2025.
Builds on
3 of 17 references.
References · 3
- 2023GPT-4 Technical Reportcited by 18,396
- 2023FinGPT: Open-Source Financial Large Language Modelscited by 253
- 2023Can ChatGPT Forecast Stock Price Movements? Return Predictability and Large Language Modelscited by 129
Built on by
Not cited yet.
Similar, not cited
Close in wording, no citation either way
- 2025Alpha-R1: Alpha Screening with LLM Reasoning via Reinforcement Learning
- 2026From Knowing to Doing: A Memory-Controlled Benchmark for LLM Trading Agents on Stock Markets
- 2025To Trade or Not to Trade: An Agentic Approach to Estimating Market Risk Improves Trading Decisions
- 2026Can Blindfolded LLMs Still Trade? An Anonymization-First Framework for Portfolio Optimization
- 2025FinCARE: Financial Causal Analysis with Reasoning and Evidence
- 2026FaVOR: LLM-Based Agentic Framework for Factor Mining via Empirical Validation
- 2025Interpretable Hypothesis-Driven Trading:A Rigorous Walk-Forward Validation Framework for Market Microstructure Signals
- 2025Stock Pattern Assistant (SPA): A Deterministic and Explainable Framework for Structural Price Run Extraction and Event Correlation in Equity Markets