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Didn't he mention gamma trading into a fly... and the position ceases to generate delta at the wings? I assumed that the example he gave pertained to gamma scalping with a butterfly...

I guess being pinned at expiration is more dangerous than I thought... [note to self] - liquidate short positions before expiration...

If I understand correctly, the Nymex guy made millions gamma scalping the flys (particularly a Reverse Iron Butterfly). Nonetheless, in 2008 he got taken out of the game [does this mean that he lost millions]... why did the flys not protect him from a IV collapse?? Thanks, Walt

I assume that you meant to quote Dagnyt (Mark)...

Do you think there's a chance to make it work with the reverse iron flys? Gamma scalping is better than a traditonal/static long straddle. I am trying to improve upon the gamma scalping model so that it's occurs more frequently than "magical moments" :(

I'm not sure how to calculate the outcome; however, I believe that the theta & negative IV loss avoided with both spreads would more than compensate for the gamma/delta loss associated with the short leg... If I'm fundamentally wrong, then I guess I'll go back to the drawing board of the...

How would you hedge your option scalps... or, are you looking to fade the moves with a a scalp???

lol... of course I would close out when/if the short wings are ITM. With them being several strikes away, this would have been a very profitable trade by the time one of the short wings go ITM...

Personally, with the bid/ask spread and the transaction cost (commissions), I don't see how you can scalp with options. Although the stock requires more capital outlay, the bid/ask spread & the commission are much cheaper than options. Walt

Gamma scapling works in a one directional market, as well as an oscillating market. Why would this variation get hammered in a one directional market?

I don't see how it would switch from a buy to a sell while the stock is continuing in the same direction. I would simply treat this as a long straddle while buying/selling the underlying asset based upon the delta changes to the long positions. I would completely ignore delta changes to the...

A shortcoming of a long straddle is that theta & potentially IV can hurt your position. In essence, a big move in the near term is needed to offset the premium cost & continuous decay, needless to mention a drop in IV. Gamma scalping was added to long straddles in order to help capture...

Instead of gamma scalping, I would probably trade around a given underlying position. For example, if I owned 100 shares of google, when the price goes up I sell a few shares, when the price goes below my base price I buy a few shares... this way I avoid the potential pitfall of IV & Theta...

Isn't the essense of gamma scalping to take advantage of whipsaws of the price??

I guess I could initiate the gamma scalp with a synthetic straddle; however, I'm still dependent upon reversion-to-mean by the market... of course, improved IV would help as well. But on the flip side, Theta and a reduction in IV would seriously hurt - especially if the market is starting to...

Are you suggesting a straddle, and gamma scalp by going long/short on the stock as the market whipsaws? If so, then I'm in trouble the moment the market takes off on a big trend... Walt

True... but dynamic hedging of a calendar collar is probably still my best bet at low cost & low risk hedging of a stock position (long or short)... Walt

I guess my best bet is a calendar collar... where I dynamically adjust the short calls & the long puts as the value of the derviatives change due to Theta, Vega & Delta. Does anyone have extensive experience on calendar collars? Walt

Maybe my time would be better spent trying to find Big Foot riding a Unicorn, as opposed to finding a low/no cost & low/no risk downside protection mechanism... Walt

Thanks for the reminder about ultra etf, as I do recall reading some time ago that they tend to lose value over time, with all things being equal. Spindr0 & Mark, I appreciate your recommendation on a collar over the backspread as downside protection. I guess the only way that I would...