Question on SLV gamma squeeze
- Thread starter darp
- Start date
Yes emulimu. Back to the question. In past I was able to come to this forum and get answers to option questions by people that knew more than I. If for example 5X3 diagonal spreads were put on SLV in mass, would it generate a gamma squeeze like happened on GME?
I have read that option market makers had to buy stock to hedge the calls the sold. I know enough to know option market makers generally buy 50% as much stock as the calls to delta hedge, which does boost the stock if big enough.
Looked up definition of it,
A gamma squeeze is a feature of the derivatives market as it forms part of options trading. The price of these derivatives are constantly determined through a series of mathematical calculations to display ‘gamma’. Gamma is at its highest level when the derivative is very close to the actual share price.
When a trader buys or sells options, the market maker needs to have the means to provide the asset at the required price when the option is redeemed. Market makers often take large positions in the market to counteract these large risks.
When the traders overwhelm the market by buying or selling a specific asset at a large volume, it can cause the market maker to buy out or sell their positions, leading to a large volume of trade in the market.
When the market makers buy or sell out of their positions, they cause a surge in the price of the underlying shares. This is known as a gamma squeeze.
So if there are 5 2024 calls long and 3 March 31 short, would that cause a gamma squeeze if say $20 million worth of those spreads were put on?
I have read that option market makers had to buy stock to hedge the calls the sold. I know enough to know option market makers generally buy 50% as much stock as the calls to delta hedge, which does boost the stock if big enough.
Looked up definition of it,
A gamma squeeze is a feature of the derivatives market as it forms part of options trading. The price of these derivatives are constantly determined through a series of mathematical calculations to display ‘gamma’. Gamma is at its highest level when the derivative is very close to the actual share price.
When a trader buys or sells options, the market maker needs to have the means to provide the asset at the required price when the option is redeemed. Market makers often take large positions in the market to counteract these large risks.
When the traders overwhelm the market by buying or selling a specific asset at a large volume, it can cause the market maker to buy out or sell their positions, leading to a large volume of trade in the market.
When the market makers buy or sell out of their positions, they cause a surge in the price of the underlying shares. This is known as a gamma squeeze.
So if there are 5 2024 calls long and 3 March 31 short, would that cause a gamma squeeze if say $20 million worth of those spreads were put on?
no. It’s not a religion. Religions are beliefs that are unsubstantiated by facts and models.
Theta is the rent you receive for being short gamma. That’s how options work. If the underlying moves a lot you lose more gamma than you receive in theta. Theta is not income if it’s compensation for a cost you will realize. Do you call it income when a stock appreciates?
You don't receive theta. You receive options premium and theta/gamma is an accounting number to represent how much of that options premium you are likely (but not guaranteed) to keep.
My portfolio today: received 32k of theta and lost 24k gamma pnl. I didn't hedge most of my deltas today, so tomorrow that will become delta pnl (one way or the other). Do I consider the 32k as income and just ignore the 24k. No one deposited 32,000 into my account today. All that happened is my liabilities dropped by 8k and it was attributable to these two factors.
It’s definitely not a dividend and to call it that shows how little the OP understands how options work - or he’s a shyster.
Theta is the rent you receive for being short gamma. That’s how options work. If the underlying moves a lot you lose more gamma than you receive in theta. Theta is not income if it’s compensation for a cost you will realize. Do you call it income when a stock appreciates?
You don't receive theta. You receive options premium and theta/gamma is an accounting number to represent how much of that options premium you are likely (but not guaranteed) to keep.
My portfolio today: received 32k of theta and lost 24k gamma pnl. I didn't hedge most of my deltas today, so tomorrow that will become delta pnl (one way or the other). Do I consider the 32k as income and just ignore the 24k. No one deposited 32,000 into my account today. All that happened is my liabilities dropped by 8k and it was attributable to these two factors.
It’s definitely not a dividend and to call it that shows how little the OP understands how options work - or he’s a shyster.
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All this has been debated many times here on et. There are many ways to skin a cat. Some prefer this and some prefer that. No one way is superior. Unless, you walk me through a recent gamma trade of yours, there is no point to this claim of your’s. I am a full time theta decay trader and I am doing fine. I have a couple of structures whose risk/reward is acceptable to me and that’s what matters to traders. I can’t pick a direction every day and keep cutting my losses every day. That’s just not my personality. But it doesn’t matter. I found my way and life is beautiful now. I don’t have any urge to go and beat down on all other ways of trading.
Darp here is definitely more sophisticated and seeking his way of trading. Just encourage him and tell him there are many ways to trade and he will find his.
Darp here is definitely more sophisticated and seeking his way of trading. Just encourage him and tell him there are many ways to trade and he will find his.
i'm not saying that receiving theta is a bad trade. It's speculative just like picking direction on a stock. And theta by itself is just an accounting system to accrue options premium. It can be lost as easily as it can be gained. If you earn theta today, you might lose it tomorrow if the stock moves big and you have a big gamma pnl day. Every day your theta changes as the accrual changes (with moneyness, time to maturity, and implied vol levels)
Being long gamma (paying theta) is just as speculative in the opposite direction.
I received 32k of theta and lose 24k of it in gamma. Overtime all these theta pnls + gamma pnls + delta pnls will equal (Premium I received - max(S-k,0))
its diengenous to call the theta I received a dividend or income.
I think Darp is not sophisticated. he's either a charlatan who has some reason to dupe people or he's actually a bozo.
Traders who are drawn towards theta decay trades are usually risk averse and need mathematical certainty. My theta decay trades are not speculative at all. I can spend some of my profits and structure it to be speculative, if I choose to but trading doesn’t have to be speculative if you know what you are doing.
they are absolutely speculative. If you don’t see that then you are missing something in what you are doing. It’s either speculation or arbitrage. And im sure you aren’t doing arbitrage. But that’s not the point.
the point is that theta isn’t income. Theta isn’t profit. Receiving premium is not profit. It’s only profit when you cover or it expires. Until then it’s just accounting.
Dividends and income are real monies that hit your account. The grocery store doesn’t accept theta.
the point is that theta isn’t income. Theta isn’t profit. Receiving premium is not profit. It’s only profit when you cover or it expires. Until then it’s just accounting.
Dividends and income are real monies that hit your account. The grocery store doesn’t accept theta.
There are ways you can setup and forget a trade. Your profit then qualifys to be called as “income”.
Now, we are just continuing this for the sake of wanting to win. You are successful in your trading and I am successful in mine. We can leave it at that. I just wanted to say that this constant hammering about cutting losses quickly and trading is pure speculation has delayed finding my way of trading sooner. I just want others to find it sooner. Peace and happy trading to all.
Now, we are just continuing this for the sake of wanting to win. You are successful in your trading and I am successful in mine. We can leave it at that. I just wanted to say that this constant hammering about cutting losses quickly and trading is pure speculation has delayed finding my way of trading sooner. I just want others to find it sooner. Peace and happy trading to all.
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speculation isn’t a bad word. It just means your outcome is uncertain. And all traders have uncertain outcomes unless your trade is a pure arbitrage. If it’s speculation it’s not income.
I’m not the only one who sees it that way. I just took out a mortgage for new home. The banker didn’t care about my capital gains. They did value my mortgage on my net worth (which could have bought the house like 10x over). They used some depletion formula - ie you don’t earn ever again.
I’m glad you have a profitable strategy. My advice is to recognize its risks and be humble enough to say it’s not income. I can lose it and then some any day.
back to the OP: theta is not a dividend. And a dividend is not the same as capital gains, whatever the tax laws of a territory in the US says.
I’m not the only one who sees it that way. I just took out a mortgage for new home. The banker didn’t care about my capital gains. They did value my mortgage on my net worth (which could have bought the house like 10x over). They used some depletion formula - ie you don’t earn ever again.
I’m glad you have a profitable strategy. My advice is to recognize its risks and be humble enough to say it’s not income. I can lose it and then some any day.
back to the OP: theta is not a dividend. And a dividend is not the same as capital gains, whatever the tax laws of a territory in the US says.