My apology. I felt the topics were pretty related and personally find broader discourse is useful when trying to grasp a new concept. Best of luck to you.
Gamma Scalping
- Thread starter gaussian
- Start date
My apology. I felt the topics were pretty related and personally find broader discourse is useful when trying to grasp a new concept. Best of luck to you.
It's no problem - you'll be better serviced by your own topic since people would be replying to mine. Nothing personal.
I used to play around a little with straddle scalping. Never did much with it. Here is an ancient thread from 2003 where I showed what I did. You may find it humorous.
https://www.elitetrader.com/et/threads/gamma-scalping.15395/
I liked post #4 "Buy calls and buy puts. Then keep balancing your total delta buy buying and selling the underlying."
It was the only one there was little to take issue with. Would have preferred "buy options. Then..." but otherwise that's the gist of it. Unfortunately, the action is about .001% of it.
No, not always long gamma. NEVER significantly short it though. I always set up to become long gamma if we moved. So much so, I even thought of selling call spreads and selling put spreads as long vol trades, even though they are not.
As a rule of thumb, I always calculated where my daily theta would be covered by my gamma move and hedged 1/3rd of my gamma there. This way if it keeps going up I don't want to kill myself for having hedged too much, and if it goes back to unchanged, I don't want to kill myself for having sold nothing. But once it goes up beyond that b/e point. I would get the fuck out of my own way and just let it go. Watching something take on an exponential function, in your favor, is a beautiful thing. This is why when you have negative gamma you need to scalp yourself to death. Sucks, but god forbid you let little linear-ish looking losses go exponential on you. Game over!
So when you are long an option your theta is negative and your gamma is positive. If your gamma is outrunning your theta, why hedge at all?
Sanity.
What if it goes back to unchanged? Say I was flat coming into the day. We go up $1. My gamma makes me long 300. I hold to my rule and sell 100. Now we go back to unchanged. If I did nothing, it was like I hadn't been there. I'm back to flat and ate my entire theta. But I did sell that 100. so now at unchanged I am -100. I buy it back, I made $100 hedging gamma. (Lost on the day, but at least not a total loss of my theta) I'm not happy, but not kicking myself in the ass for having done nothing.
Understand, there is NO correct answer. This was my methodology to not endanger my focus.
Sanity.
What if it goes back to unchanged? Say I was flat coming into the day. We go up $1. My gamma makes me long 300. I hold to my rule and sell 100. Now we go back to unchanged. If I did nothing, it was like I hadn't been there. I'm back to flat and ate my entire theta. But I did sell that 100. so now at unchanged I am -100. I buy it back, I made $100 hedging gamma. (Lost on the day, but at least not a total loss of my theta) I'm not happy, but not kicking myself in the ass for having done nothing.
Understand, there is NO correct answer. This was my methodology to not endanger my focus.
Sanity.
Great post WZ!!
I dread being long gamma for the very reasons you brought up..Seems like every adjustment I make is wrong...
I am a short gamma guy,but long the death insurance...
I dread being long gamma for the very reasons you brought up..Seems like every adjustment I make is wrong...
I am a short gamma guy,but long the death insurance...
"I dread being long gamma for the very reasons you brought up..Seems like every adjustment I make is wrong..."
Even worse short gamma, just chop yourself to death all day long knowing it's the right thing to do.
"I am a short gamma guy,but long the death insurance..."
Me always loved da teenies.
Even worse short gamma, just chop yourself to death all day long knowing it's the right thing to do.
"I am a short gamma guy,but long the death insurance..."
Me always loved da teenies.