Need clarification on GAMMA SCALPING - Trading-Lab

charlesK · #1 07-25-2007, 04:52 PM

hello all,

I need someone to clarify what is GAMMA SCALPING exactly? If you can provide a practical example, I would really appreciate it. Thanks!!!!

charlesK · #2 07-27-2007, 05:06 PM

anyone? any idea?

daytraderB · #3 08-02-2007, 04:25 PM

Hello,

I believe what you are referring to is a situation where you pick an optionable stock or other contract with a certain historical volatility, let's say 50% where you are able to buy a straddle trading at a theoretical volatility of let's say 45%. This way you have a delta of 0 or very close to 0 (by buying an at the money straddle).

while holding on to the straddle position, you must be ready to adjust your underlying position based on how its price changes affect your straddle position delta. that is, is the stock moves up $4, you will find your straddle position has made you delta long 200 shares, so you have to adjust that by selling 200 shares of your stock.

in other words, gamma scalping is forcing you to adjust over and over again by buying low and selling high. this goes on during the entire option life. then, if straddle implied volatility comes to 45% which is your historical volatility, you should have made money as you might have spent $x to buy the straddle, and earned $x + $2K on your adjustments.

BlueChips · #4 08-13-2007, 03:01 PM

you may want to give Natenberg's book Options Volatility and Pricing a read, as that book has some very good material on gamma scalping.

charlesK · #5 10-03-2007, 03:22 PM

thanks for the info, guys

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#1 07-25-2007, 04:52 PM
charlesK Junior Member Join Date: Jun 2007 Posts: 26	Need clarification on GAMMA SCALPING hello all, I need someone to clarify what is GAMMA SCALPING exactly? If you can provide a practical example, I would really appreciate it. Thanks!!!!

#2 07-27-2007, 05:06 PM
charlesK Junior Member Join Date: Jun 2007 Posts: 26	anyone? any idea?

#3 08-02-2007, 04:25 PM
daytraderB Member Join Date: Jun 2007 Posts: 63	Hello, I believe what you are referring to is a situation where you pick an optionable stock or other contract with a certain historical volatility, let's say 50% where you are able to buy a straddle trading at a theoretical volatility of let's say 45%. This way you have a delta of 0 or very close to 0 (by buying an at the money straddle). while holding on to the straddle position, you must be ready to adjust your underlying position based on how its price changes affect your straddle position delta. that is, is the stock moves up $4, you will find your straddle position has made you delta long 200 shares, so you have to adjust that by selling 200 shares of your stock. in other words, gamma scalping is forcing you to adjust over and over again by buying low and selling high. this goes on during the entire option life. then, if straddle implied volatility comes to 45% which is your historical volatility, you should have made money as you might have spent $x to buy the straddle, and earned $x + $2K on your adjustments.

#4 08-13-2007, 03:01 PM
BlueChips Member Join Date: Jul 2007 Posts: 49	you may want to give Natenberg's book Options Volatility and Pricing a read, as that book has some very good material on gamma scalping.

#5 10-03-2007, 03:22 PM
charlesK Junior Member Join Date: Jun 2007 Posts: 26	thanks for the info, guys