The long gamma road

B

blueplayer

I don't usually do long gamma trading with options but those trades can be fun. Here is the first entry started today:

Long 10 SPX April06 2095 CALLS for 0.85 (traded at 2:33:34 PM EDT).

It will be closed tomorrow no matter what. Stop point 0.40 cents (very tight from the close).

Risking .45 cents on the trade. Optimal target 2.10

We'll see, it doesn't look promising at this point.
 
How is this a long gamma trade? You are long SPX. When traders say they are long gamma it's usually implying a market neutral structure hence why they mention gamma. So basically you just bought the market today.
 
Maverick74 said:
How is this a long gamma trade? You are long SPX. When traders say they are long gamma it's usually implying a market neutral structure hence why they mention gamma. So basically you just bought the market today.
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So you are telling me that I'm not long gamma in that position?

I never said I was delta neutral, one can be long gamma and long delta. Of course if you disagree you can point me to where you think that I'm mistaken.

I highlight the position as long gamma because the pay-off (if it ever happens) will come almost exclusively from gamma as that particular option has only 0.06 of delta on it.
 
blueplayer said:
I don't usually do long gamma trading with options but those trades can be fun. Here is the first entry started today:

Long 10 SPX April06 2095 CALLS for 0.85 (traded at 2:33:34 PM EDT).

It will be closed tomorrow no matter what. Stop point 0.40 cents (very tight from the close).

Risking .45 cents on the trade. Optimal target 2.10

We'll see, it doesn't look promising at this point.
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The mid of the option is now 0.32 below my stop but giving how SPX is behaving this morning I'll let it ride for one more hour. But in any case I doubt this position will profit at all. I'll be surprised if I can exit at 0.40.
 
blueplayer said:
So you are telling me that I'm not long gamma in that position?...
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No because you are not getting shorter if the SPX goes down. You only get longer if it goes up, and less long if it goes down. You are however, long delta.

"When you are "long gamma", your position will become "longer" as the price of the underlying asset increases and "shorter" as the underlying price decreases..."

http://www.optiontradingtips.com/greeks/gamma.html
 
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blueplayer said:
The mid of the option is now 0.32 below my stop but giving how SPX is behaving this morning I'll let it ride for one more hour. But in any case I doubt this position will profit at all. I'll be surprised if I can exit at 0.40.
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Life is full of surprises,I manage to exit the lousy trade at 0.75, a loss of .10 plus comms. The trade was doomed from the terrible entry yesterday (basically at the highs) and accelerated decay on Friday, which btw seemed to really pick up in force after 3:20PM.

The implied volatility at entry was 8.7% (full risk implied, no risk-neutral). And when I exited it was 6.5%, more than 2 vols of collapse, they got me there.

I was hoping to illustrate the non-linear nature of options with this little trade but oh well next time. Also for reference, it did go from 0.32 to about 0.88 at some point today but of course hindsight is always correct.

We'll see if I can catch the next one, the perils of directional long gamma, at least I managed to exit with an small loss.
 
Martinghoul said:
This position IS long gamma, obviously... Stop being silly.
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Being net long options generally means you are net long gamma. But I am 90% certain that is not what he thinks he means. To speak of gamma of a single option on an underlying is silly. It is a mathematical anomaly of the definition and has no barring on trading strategy as it relates to gamma trading.
 
nitro said:
Being net long options generally means you are net long gamma. But I am 90% certain that is not what he thinks he means. To speak of gamma of a single option on an underlying is silly. It is a mathematical anomaly of the definition and has no barring on trading strategy as it relates to gamma trading.
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Totally disagree...
 
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