Gamma Risk Explained
5 stars based on
A cynical look at our financial markets and the governments that support them. With the proliferation of options trading gamma scalping day trading and tools in the retail market, that no longer needs gamma scalping day trading be the case. There are two positions that you can take by buying options long gamma or selling options short gamma while delta hedging the equity exposure:. Gamma scalping day trading short term implied volatility is trading relatively cheaply compared to the last 4 years of historical volatility, we could consider this an opportune time to purchase options.
Instead of making an explicit directional call, let us instead say that we just want to make a trade that suggest volatility will be a lot higher than the In order to do that, I would buy the straddle and then delta hedge the position daily:.
You will notice that the total position delta is zero due to the short gamma scalping day trading shares of SPY. The slippage is due to the change in delta over that range in value. If we use this as our break-even starting point, we can calculate an approximate point move that gives us a break-even for the day:. The next question is to look at how frequently you gamma scalping day trading delta hedge this position, but we will leave that for another day.
This in no way is a trade recommendation, just an educational example. The literature on stochastic volatility is vast, but difficult to penetrate and use. It successfully charts a middle ground between specific examples and general models—achieving remarkable clarity without giving up sophistication, depth, or breadth. In The Volatility Surface he reveals the secrets of dealing with the most important but most elusive of financial quantities, volatility.
Written by a Wall Street practitioner gamma scalping day trading extensive market and teaching experience, The Volatility Surface gives students access to a level of knowledge on derivatives which was not previously available. I strongly recommend it. Posted in DerivativesEducationalMarkets. Tagged with delta hedgedelta hedginggammagamma scalpinggamma tradingimplied volatilityOptionsSPYthetatrading gammavega.
By SurlyTrader — March 21, Stay in touch with the conversation, subscribe to the RSS feed for comments on this post. Email required, but never shared. Notify me of follow-up comments via e-mail. Buy the print book in color and get the Kindle version for gamma scalping day trading along with all examples in a spreadsheet tutorial! Proudly powered by WordPress and Carrington. Volatility Arbitrage SurlyTrader linked to this post on March 28, […] conversation flows naturally the previous thoughts on gamma trading, so we will expand upon capturing positive or negative implied volatility premiums in a future […].
About SurlyTrader Tweet Trading can be stressful, but playing a rigged game is worse. SurlyTrader will explore the hidden game of financial institutions and the government that supports them while providing useful tips on trading strategies, hedging and personal finance. SurlyTrader is gamma scalping day trading portfolio manager at a large financial institution who specializes in trading derivatives.
Support the Blog Voluntary Donation for the Blog. Free Email Subscription Your email: Popular Posts Option Strategy: