Great old threads about Gamma scalping

Quote from jem:

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.

If what is described in Mav's post is the main point you got, I think you would be for a big surprise. The devil is in the details. For instance, when you scalp you remove from the total gamma's you may have dearly paid for , and if the stock continues its march you lose the gamma you initially bought for the larger initial size, and you may get as total reward less than the total premium you paid because of the reduced size due to the gamma scalp done at the wrong time and price. You need to design much more subtle quantifiable criteria to know if and when to scalp. It require a deeper understanding of options, but at least these criteria exist. They are not based on feeling or experience, but on numbers.

You can think of it as buying a number of straddles which you sell as baby straddles. Baby straddles need to be sold at particular prices and times, and subject to what happens next. The timing is even more demanding in scalping, but somehow it may not look so because people "make money" when they scalp.
 
Quote from jem:

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.

1. Subtle.

2. Would you recommend that one tries the much easier living?
 
Quote from tradingjournals:

1. Subtle.

2. Would you recommend that one tries the much easier living?

I was not trolling for a get rich quick scheme.... But if you have the seo skills and the time to get your website to the top of google, you are licensed by your state bar to give advice on dealing with lenders and you own a real estate brokerage. I would be happy to work something out with you.
 
What I do now is far easier because I could not sit front of 6 monitors watching just about every tick all do long anymore... unless it was a matter of putting food on the table.
I do probably work longer hours now.
 
Quote from atticus:



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.

Anyone that marries their trading success to one trade will eventually fail. The long gamma traders will lose slowly and quietly over time, with a chance of hitting it big every now and again. The short gamma traders will make money in most months, often believing they are the smartest guys in the world, and then blow out suddenly, yet predictably.

I always experience a small tinge of freudenschade when the short vol traders blow up.
 
Quote from Jerkstore:

Anyone that marries their trading success to one trade will eventually fail. The long gamma traders will lose slowly and quietly over time, with a chance of hitting it big every now and again. The short gamma traders will make money in most months, often believing they are the smartest guys in the world, and then blow out suddenly, yet predictably.

I always experience a small tinge of freudenschade when the short vol traders blow up.

The guys I refer to were opportunistic; selling vol in the top decile and buying the bottom. Unfortunately, they would miss hedges and occasionally got pinned. It gets serious when you're pinned at expiration holding 8k straddles in Coffee.
 
Hi,
I rephrase my initial question because I did not really get an answer:

here is a quote from Sonoma:

"If you're trying to replicate, the essential element of option trading is to buy at a vol less than realized or sell at a vol greater than realized. Then you wait for probability to smile in your favor."

Does that mean that if you buy at IV xx%; IV has to be > to XX when you close or does that mean that the historical volatility has to be above the initial IV(XX).

Thanks in advance for your help
 
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