Great old threads about Gamma scalping

Hi,

Question: in order for Gamma Scalping to be a profitable trade, do I need an increase in IV between opening and closing the trade or do I need historical vol to be above initial IV when closing?
 
Use stat vol for hedge triggers, not implied vol. It's best to hedge light than miss a hedge by a few ticks. There is nothing magical about long gamma. People gravitate to it because it's long tails.

I've known more floor traders who have left the business from getting clipped on long-gamma using a haircut than those trading short gamma. It takes a lot more capital to get yourself into trouble in short gamma.
 
Quote from Maverick74:

I'll make a few points here. One, you absolutely cannot do this in a Reg T account. You'll have to put out too much capital for too little return. You need a haircut.

Two, do not make the mistake of trying to buy cheap vol. You need to buy very expensive vol into either earnings or some other volatile event. Do not hold through earnings. You will usually see increased stat vol running into numbers. You will also experience flat decay across the board as vols increase as time decreases. It's actually possible to pay 5 pts for a straddle 3 weeks into a report and sell that same straddle for 5 pts right before the announcement and scalp the stock for free for 3 weeks.

No, this doesn't happen often and no, this is not free money. You will work for it and you will need to know what to look for. Just whatever you do, don't do this in a retail account. You'll make more money in a CD.
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Absolutely fricken best post (for me) I have ever read on ET. I was driven a bit nuts (mentally not financially) by the elusive idea of gamma scalping. I used to trade a few million shares a month and floor guys kept telling me to looking into gamma scalping. It never made sense. I would put the trade and then wonder... What is the point of the option - I trade the corners anyway.


I never saw saliba on trading markets add that little tidbit to his advice about gamma scalping. The guy who ran our llc was a former option trader and he never explained why I did not see the edge.

Now that I see the point of gamma scalping, I almost want to get my series seven again just to see if I could could make this profitable again. I was a profitable stock scalper for about 7 years.
 
Saliba? The guy was always carrying 10k or more long flies. Sure, he got them cheap, but it wasn't long gamma unless spot traded outside his wing strikes.

Mav is right about buying straddles in macro-events. It's often free money to hedge light or simply watch vols rally 2000bp into news. Simply buying an index combo isn't the answer.
 
I remember reading saliba talking about options on tradingmarkets. I learned a few things from him. I thought the guy who worked for him was an even better read. But as I said the idea of gamma scalping really appealed to me - I just did not see the edge over what I was doing.

I could be long or buy a bullet and be short a thousand or two which is all I needed when the stocks had 3 - 7 point ranges.

So I bought bullets in my favorite traders and traded my ass off for a few years. it was ridiculous fun.
 
whenever I write that stuff people send private emails about what our edge was. So let me say my real solid edges are gone. If I have an edge now... it is experience but at the moment I am not trading much because I make a far easier living now.
 
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