Calendar Spread Basic Setup Question

[TheDawn]

Can you please explain to me, in simple terms, what infinite gamma means? To my virgin options ears, it sounds like free money. So help me understand infinite greeks.

I don't know what you mean by "free money". If you mean whoever longed the options were able to extract excess profit at the expense of somebody who shorted the options? In a way, yes. I think the best way to think of gamma is this extra cost or "free money" that the insurance company can keep adding to your regular insurance premium until the amount reaches infinite thus I give it the name "infinite gamma".

In option theory, this gamma is supposed to reach zero when the option price is moving exactly on 1:1 basis with the change in the value of underlying reflecting exactly the difference between the underlying and the strike price of the option +-(underlying - strike) but in reality, in extreme market conditions, it doesn't. So for example, if the underlying is $100 and the strike price on an option is $110, the option price should be $(110 - 100) = $10 and if the gamma is zero, then $10 should be the option price. But in reality, in extreme market conditions like Black Monday, Oct. 19, 1987, it wasn't. Using the example here, the price reached $100, $1000 or $10,000! And since an option price is in very crude terms is comprised of gamma and gamma is zero, then WHERE is the extra premiums, this "free money" coming from?

I posed this above question in two of my posts and so far no one has answered me besides ridiculing me and calling me names. LOL And this is not just observed on that Black Monday but it's observed in extreme market conditions every single time albeit subdued now due to the circuit breakers which put a limit pretty much on how high the dealers aka "the market" can push the gamma. This "infinite gamma" phenomenon is what blew up numerous option sellers, naked option sellers' accounts and funds. Yes true, you are supposed to hedge by longing the option at the same time but still 1) it doesn't negate the existence of this phenomenon of infinite gamma and 2) the very fact that you need to hedge proves exactly the existence of the infinite gamma because when you are long, the infinite gamma will help your long option to take off and mitigate some of the losses from your short option position. That's why I wrote in my previous post here that I hope when I am longing options in a straddle/strangle I would enjoy the infinite gamma to allow me to have this "free money" for a change now that the dealers are on the other side having sold the option to me. LOL

If you are interested in reading in more detail about this phenomenon that I made about infinite gamma, I have provided the posts below where I discussed this concept which I observed in length as well as the two posts where I provided empirical evidence that I feel supports this observation of mine. Excuse all the profanities in there. I lost more and more control of my emotions at the end after being constantly egged on and belittled by the pathetic trolls in those threads (yes they pushed the gamma to infinite on my anger LOL) otherwise Happy Reading and Happy Thanksgiving!! Hope you had a good one.

Directional bets is not any more profitable either because you are limited by theta if you go for short-term. Options is really best for hedging and not for speculation, period because it's rigged always in favour of the dealer just like the casino. It's a venture where when you lose you will always lose more than you win and when you win, you are always limited in how much you can cash out despite the fact that it advertises that your payoff is supposed to be infinite. When you long in volatility where your payoff is supposed to be infinite, you pay up a lot more and you are limited by theta where the dealer changes the game and says I will only pay up when the price moves this amount by this amount of time so even if moves the amount predicted but because it didn't move by that time, the dealer says sorry I can't pay up that much. So then you thought ok if my profit potential is limited by theta, why don't I become the dealer and sell options and limit others' potential profit by theta so that way I don't have to pay up when the price didn't move X amount by X amount of time, then the dealer turns around and pushes up gamma so much that it makes theta move in the opposite direction so it doesn't limit profit potential anymore and the price moves up so much that you are forced to pay up and lose lot more than you gain and the dealer wins again. So it's basically when you are long in volatility, you don't get paid and when you short in volatility, you get fucked in the a$$. Either way you don't get paid and the casino does all the time.

But when you are hedging, it's different because you are not using it to make money; you are using the underlying to make money and options is just a cheaper way to recoup some losses if you are incurring it on the underlying. When the underlying is making money, it's making enough to cover the cost of the options and when it's making losses, the gamma on the options will take over and make the options increase in value for you to recoup the losses. So theta doesn't affect you as much anymore and you are taking full advantage of gamma.

This post above is the original post about my observation of the existence of infinite gamma.

And then I just elaborated the concept further:

EXACTLY!! It was the short puts, pushed by the ballooning infinite gamma that never really reached 0 when delta reached 100 (or 1) like what @destriero tried to illustrate. And guess who pushed gamma to infinite on that day? The put shorters' tremendous losses on that Black Monday was the prime example of how gamma could be manipulated by the dealers who took the other side of the transaction who refused to sell their puts no matter how much the put shorters bidded to buy back their puts.

Thank you for proving my point with this empirical evidence and that theory doesn't really matter. It's the reality that counts.

These are the two posts that I have illustrated this concept with what happened on Black Monday, Oct. 19, 1987. Again, excuse the profanities there. I was egged on by the trolls that I have now blocked.

Dropping decimals for deltas is a fucking noob move. NOBODY in professional or amateur options trading does that or discusses delta like that and no options prices are ever listed with delta with no decimals. And I stand by what I have said, gamma DOES become infinite even though in theory with static IV, it does drop once the option becomes ITM and eventually approaches zero when the delta is 1 but in reality IV changes and constantly adjusts so when volatility explodes, IV explodes with it and that's why a particular option never becomes ITM enough for gamma to become zero; it will ALWAYS have some positive value exacerbating delta so in a way, gamma really becomes infinite. I stated this very clearly in the original thread where I first made this observation and illustrated it with the Oct. 19, 1987 Black Monday phenomenon:

You two POS can't understand it and refuse to understand it because you two were too busy protecting your pathetic ego so you two can continue to troll here.

If gamma all becomes zero there should be no reason why people would not able to buy back their options when it was DITM even paying several times over the intrinsic value since if gamma is zero when delta is 1 then that means there is no more extrinsic value between the options price and the underlying; intrinsic value is all that's left. But that's NOT what happened on that Black Monday, Oct. 19, 1987. Put sellers who were losing were offering to pay several hundred times over the intrinsic value in order to close their positions and their orders were refused. And the MM's who refused their orders all cited "risk" as the excuse and that the price was fast moving. Given that what they were saying is legit, this proves my point that gamma can become infinite when pushed by IV that's fast ballooning and increasing in real-life trading which is entirely different from what's statically in theory that it is zero when delta is 1.

"Options markets losers have complained that prices became unreasonably high during the day on Black Monday, that professional options traders at the Chicago Board Options Exchange were gouging individual investors.

Exchange officials dispute that. With the stock market in free-fall, the risk of buying was too great and traders had to demand steep premiums to protect themselves from disaster. "It's like walking into a burning house and trying to buy fire insurance. Of course it costs a lot," said a CBOE spokesman."

https://www.washingtonpost.com/arch...ped-out/090c57f7-fc75-4f02-9d22-585cf53c8548/

Premiums, steep premiums!! If gamma is 0, delta is 1, WHERE did these premiums and steep premiums come from??!! Everything should be intrinsic value; there should've been no premiums. If you look at an DITM option right now with delta of 1, gamma of 0 from any option table, its price is exactly the intrinsic value but that's not how it happened that day. If it could happen back then, it could happen today and it does happen today, just on a muted level because of circuit breakers.

If the underlying of SPX on that day was 250 let's say, and the strike was $350 let's say, with a gamma of 0, delta of 1, the option price should've been (300-250) just $150, and yet the guy in the article was offering to buy back his options at $5,300 to get out, a premium of (5300 -50) = $4650!! If the intrinsic value determined by delta of 1 was only $150, then the entire extrinsic value of (4650 - 150) = 4500 would be due to gamma. It didn't reach infinity only because the market closed at 4:00 pm. If it hadn't, I am sure it would've gone further due to the exploding IV that was determined by whom?? Yes, our best friend, the dealers who cited "risk" and using the wonderful analogy of buying fire insurance for a burning house. Sure that insurance would cost a lot, but how much is a lot?? Infinity??!!

Anyway I don't expect you two bozos to understand or ever wanted to understand it as like I said, you just wanted to troll with your ego (cuz that's the only thing that you have left). This is really for me and for everyone else on ET who's interested in options and wanted to learn more about it instead of or at least besides trolling. And it's really off-topic to this thread here but I can't believe you two shitheads would drag a topic from another thread to this one just to troll because you are just that pathetic.

Just proved to you, gamma does NOT fall when vol rises. In theory it does, but in reality it doesn't otherwise how do you explain the rising extrinsic value?? When vol drops, theta takes over (and that's another topic that I am not wasting any more of my time and energy to explain to you bonehead) and gamma does not increase either as gamma is highest only when options are ATM and actually approaches zero also the more OTM an option is. Gamma is also zero when an option's delta is 0 not just when it's 1.

https://www.optionseducation.org/advancedconcepts/gamma

Yeah you are full of shit. I just proved it to your face with a real example and now you can't take it. You can't admit that you know shit. EXACTLY as I thought, you've got nothing to offer but is just here to troll your life is shit.

I did already but you two lowlifes decided to egg me on with your pathetic sarcastic remarks even when I am posting on different threads so I decided to prove the matter once and for all to shut the two of you shitheads up! Now that I have, I am putting the two of you, you and @newwurldmn on "Ignore" since you two have shit to offer and I am not wasting my time and energy on shit. Lord knows I have already wasted too much.

Good riddance!!

 

[cesfx]

WARNING:
THE DAWN option theory is just that, his own option theory.

If you are learning or trying to understand options, ignore what he just wrote, and his other quoted posts.

The Dawn has been ignored by most of the professional option traders in this forum because they tried to prevent him from divulging option theory 2.0+2.0=5.5.

Because some professionals laughed at his face, and made fun of him for writing imaginary nonsense, he proceeded to block some of the best traders that contribute to this forum.

Reality:
"Gamma (Γ) is an options risk metric that describes the rate of change in an option's delta per one-point move in the underlying asset's price. Delta is how much an option's premium (price) will change given a one-point move in the underlying asset's price"
(Investopedia)

That's it, that simple.

Definitely a FINITE metric.



So, when The Dawn writes about his own imaginary reality:

"I think the best way to think of gamma is this extra cost or "free money" that the insurance company can keep adding to your regular insurance premium until the amount reaches infinite thus I give it the name "infinite gamma"."

Or

"And since an option price is in very crude terms is comprised of gamma and gamma is zero, then WHERE is the extra premiums, this "free money" coming from?

Or when he states that brokers will manipulate gamma...

Run. Just run.
Read marvel comics instead.


Luckily is very difficult to incur in losses by believing in what the dawn writes, as it makes no sense. And if you do, it means you probably don't even know how to trade an option, so you can't really lose, yet.

In my opinion he is on a mission to cause damage to option learners.
Or he is taking the piss. Stay away.

 

[spy]

THE DAWN option theory is just that, his own option theory.

@TheDawn has yet to learn the difference between an internet chat forum and a peer-reviewed academic journal.

 

[taowave]

STOP with the infinite gamma nonsense..If you really have to champion the "infinite" cause,at least use the term infinite "vega". Why do you think the upside got blown up in value as the market tanked???

And if you are going to come up with insane conspiracy theories,at least understand the relationship betweem gamma and vol..What happens to gamma when Vol explodes?? Simple divison,figure it out. Hint,1 is the numerator

And despite your seeming paranoia about the dealers mission in life to F^%K small retail players,they arent the ones who pushed the prices to stratospheric levels..It was the retail shmucks,lax clearing agents and vol sellers who were being forced to liquidate...You have no clue to how lax the clearing firms margin requirements were back then.

MM's didnt sell their puts,assuming they were net long because you couldnt get your hedges off..You had no idea where the futures were trading. What would you do if Merrill and Bear walked into the crowd asking you to make a market on 3000 puts with the futures 30 points wide,no liquidity and the upside calls balloning to 300 plus vol???

And dont talk about your "reality",as you werent in the pits trading. Your reality is simply not true,and YES,I was in the XMI crowd trading out of conversions,and sadly,not selling straddles.

You need to know what you dont know,and thats why the smart guys are on you like white on rice.

Cmon Dawn

I don't know what you mean by "free money". If you mean whoever longed the options were able to extract excess profit at the expense of somebody who shorted the options? In a way, yes. I think the best way to think of gamma is this extra cost or "free money" that the insurance company can keep adding to your regular insurance premium until the amount reaches infinite thus I give it the name "infinite gamma".

In option theory, this gamma is supposed to reach zero when the option price is moving exactly on 1:1 basis with the change in the value of underlying reflecting exactly the difference between the underlying and the strike price of the option +-(underlying - strike) but in reality, in extreme market conditions, it doesn't. So for example, if the underlying is $100 and the strike price on an option is $110, the option price should be $(110 - 100) = $10 and if the gamma is zero, then $10 should be the option price. But in reality, in extreme market conditions like Black Monday, Oct. 19, 1987, it wasn't. Using the example here, the price reached $100, $1000 or $10,000! And since an option price is in very crude terms is comprised of gamma and gamma is zero, then WHERE is the extra premiums, this "free money" coming from?

I posed this above question in two of my posts and so far no one has answered me besides ridiculing me and calling me names. LOL And this is not just observed on that Black Monday but it's observed in extreme market conditions every single time albeit subdued now due to the circuit breakers which put a limit pretty much on how high the dealers aka "the market" can push the gamma. This "infinite gamma" phenomenon is what blew up numerous option sellers, naked option sellers' accounts and funds. Yes true, you are supposed to hedge by longing the option at the same time but still 1) it doesn't negate the existence of this phenomenon of infinite gamma and 2) the very fact that you need to hedge proves exactly the existence of the infinite gamma because when you are long, the infinite gamma will help your long option to take off and mitigate some of the losses from your short option position. That's why I wrote in my previous post here that I hope when I am longing options in a straddle/strangle I would enjoy the infinite gamma to allow me to have this "free money" for a change now that the dealers are on the other side having sold the option to me. LOL

If you are interested in reading in more detail about this phenomenon that I made about infinite gamma, I have provided the posts below where I discussed this concept which I observed in length as well as the two posts where I provided empirical evidence that I feel supports this observation of mine. Excuse all the profanities in there. I lost more and more control of my emotions at the end after being constantly egged on and belittled by the pathetic trolls in those threads (yes they pushed the gamma to infinite on my anger LOL) otherwise Happy Reading and Happy Thanksgiving!! Hope you had a good one.



This post above is the original post about my observation of the existence of infinite gamma.

And then I just elaborated the concept further:



These are the two posts that I have illustrated this concept with what happened on Black Monday, Oct. 19, 1987. Again, excuse the profanities there. I was egged on by the trolls that I have now blocked.

 

[ffs1001]

The saddest part of all this is the whenever a (newbie) starts a thread on calendars, it gets highjacked by delusional fantasists like @TheDawn, or by the experts who are several quantum levels higher up in knowledge than the person who started the thread, and thus most of the posts go way above the initiators head.

It would be refreshing if there was a civil, straightforward thread on cals or flies without :

(1) armchair traders making incorrect statements based on what they're read in books

(2) experts who belittle others and intentionally write in a language that few can understand.


Meanwhile, I'll grab a beer and watch the World Cup.

 

[taowave]

Well said,except for the World cup..Didnt you mean real FOOTball

The saddest part of all this is the whenever a (newbie) starts a thread on calendars, it gets highjacked by delusional fantasists like @TheDawn, or by the experts who are several quantum levels higher up in knowledge than the person who started the thread, and thus most of the posts go way above the initiators head.

It would be refreshing if there was a civil, straightforward thread on cals or flies without :

(1) armchair traders making incorrect statements based on what they're read in books

(2) experts who belittle others and intentionally write in a language that few can understand.


Meanwhile, I'll grab a beer and watch the World Cup.

 

[newwurldmn]

no one is belittling the OP. It’s a complicated answer to a vague question.

“What’s the right way to pick a stock to buy ?”

The saddest part of all this is the whenever a (newbie) starts a thread on calendars, it gets highjacked by delusional fantasists like @TheDawn, or by the experts who are several quantum levels higher up in knowledge than the person who started the thread, and thus most of the posts go way above the initiators head.

It would be refreshing if there was a civil, straightforward thread on cals or flies without :

(1) armchair traders making incorrect statements based on what they're read in books

(2) experts who belittle others and intentionally write in a language that few can understand.


Meanwhile, I'll grab a beer and watch the World Cup.

 

[taowave]

Im pretty dam good at hindsight analysis..Hasn't failed me yet

no one is belittling the OP. It’s a complicated answer to a vague question.

“What’s the right way to pick a stock to buy ?”

 

[misterkel]

help me understand infinite greeks

Yer mom is an infinite Greek.
Sorry, couldn't resist. I'm sure your mom is a very nice lady.
Which does not preclude being an infinite Greek!



Just to try to parse out whatever the Dawn is saying, or to decipher somehow, I'd shorthand this to if Gamma = 0, then any change in gamma = infinite gamma because it's a multiplier and it makes no difference how big X is : multiplying by ZERO still yields ZERO.
It sounds like a basic math trick to me, like proving zero = 1. You can do that using algebra, BUT, the proof has a divide by zero error embedded in it.

At any rate, it's not the multiplicative change in gamma that yields profits - it's the absolute change. Infinite gamma ONLY has meaning until gamma moves from ZERO to .00001, than a legit multiplier exists.

But is gamma ever legit zero, or just so small that no change in Delta registers until Price approaches Strike, when gamma moves and Delta drops below 1?
Dunno, but it makes little difference to my trades. I don't trade gamma. I trade premium and theta differentials on cals / diags.

 

[TheDawn]

WARNING:
THE DAWN option theory is just that, his own option theory.

Thank you for confirming what I have said ALL ALONE right from the beginning. LOL This is just my own theory. Infinite gamma is a term that I made up. At least I admit it when I make up stuff, unlike somebody or something here. LOL

I knew my post is going to attract attacks from the usual gangs and I am not disappointed. LOL