gamma scalping forex futures

S

stevenpaul

I feel like one of the drawbacks to long gamma scalping with futures options is the difficulty in being precise in neutralizing delta. With stocks, when the positions becomes long by, say, 126 shares, we can short precisely 126 shares. With futures, we can't short 1.26 contracts. If we really want to scalp to neutrality, we need the good luck of becoming long or short by a nice round number of deltas. One way around this, it seems to me, is in trading forex futures options. Say you put on a straddle of the GBPUSD futures. If the delta becomes long by 1.26, that would equate to 1.26 x 62,500 (the contract multiplier), which is 72,750. Couldn't we then short 72,750 of the spot GBPUSD to become neutral? I don't know if it would work to try to neutralize the delta of a futures position in the spot market. It would certainly be easy to be very precise in neutralizing delta, and would allow the trader to scalp when the market seems to be ready to reverse, rather than when a convenient value in delta has been accumulated.

Does this idea sound like something that would work, theoretically at least? If so, maybe I'll give it a shot on paper and report back.

Thanks for any insight you would be willing share.
 
Quote from stevenpaul:
----one of the drawbacks to long gamma scalping with futures options....
----we can't short 1.26 contracts.
----Thanks for any insight you would be willing share.
More...
1) You may be undercapitalized if you're trading 1-lots of futures contracts. It's easier to hedge when you're trading multiples of 100, 1000 or 10,000 contracts.
2) You could consider trading at a bucket shop that has a smaller contract size or just be willing to tolerate having fractional exposure in your position. :cool:
 
Seems you could scalp using the future or the spot.

This for EUR/USD, not sure about the pound - but, if you need finer granularity than 1 full contract future - you could use the e-mini which is 1/2 the size of the full futures contract or even the e-micro which is approx. 1/10th the full contract, to get your position exact.
 
I'm doing this now, 1 lots in 6E and hedging in spot in mini lots. Not too difficult to figure out, but just remember paying the spread on FOPs, unless your exceptional at legging.

Also remember 6E and 6B are kind of thin, and 6A is a joke. As I've heard, OTC FX options is where the volume is. Alpari has a platform for this now.
 
Thanks to everyone for the feedback. I think the spot would definitely be a better choice than the mini futures contracts, as liquidity is incomparably better in the spot. Furthermore, size can be as precise as a single monetary unit. I tried doing a bit of scalping in my paper account today, using Interactive Brokers' risk navigator to tell me my delta, and made a few scalps, one of 38,125 GBP, and another of 12,390 GBP. That is pretty precise! Let's see if this helps the bottom line over time.
 
Quote from nazzdack:

You may be undercapitalized if you're trading 1-lots of futures contracts. It's easier to hedge when you're trading multiples of 100, 1000 or 10,000 contracts.
More...

Anyone who can afford to do 10,000 straddles should just retire from trading and get a life. :D
 
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