Questions tagged [gamma]
The gamma tag has no usage guidance.
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Purpose of Vega Hedging
I am trying to understand the principle of vega hedging.
When should a market maker vega hedge his position ?
Let's suppose that a market maker delta and gamma hedge himself, and carries his position (...
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Gamma smoothing of vanilla options
I want to ask a question about the answer provided here: https://quant.stackexchange.com/a/35211/61083. I'm wondering if there is mathematical proof as to why it is working. Meaning if I reprice a ...
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How to estimate Dealers’ Gamma Positioning
I am new here so please forgive my basic question.
There are many websites and experts out there that estimate dealer gamma positions, but I don't know what they are doing.
I think I understand the ...
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Link between Vega and Gamma
"The vega is the integral of the gamma profits ( ie expected gamma rebalancing P/L) over the duration of the option at one volatility minus the same integral at a different volatility......
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Gamma exposure assumption
When coming to calculate Gamma exposure (or Greek exposure), it's common to assume that traders are buying puts and selling calls to hedge underlining positions. Brokers are doing the opposite: ...
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No expected return in Black Scholes formula: But how about the gamma?
A lot has been written about the fact that the expected return of the underlying asset is not part of the Black Scholes formula. I understand the argument that the performance of the underlying asset ...
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What really is Gamma scalping?
How does Gamma scalping really work? It seems there is no true profit scalped. If we look at the simplest scenario, Black-Scholes option price $V(t,S)$ at time $t$ and the underlying stock price at $S$...
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Why is BG porcess a pure jump process?
Recently (~10 years ago), Kuchler&Tappe have set up a new stochastic process called Bilateral Gamma process. This process is defined through its increments:
$$\forall t\geq s, X_t-X_s\sim \Gamma_{...
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Delta-hedging frequency directly affects PnL, and not just PnL smoothness and variance?
The information I have found about delta hedging frequency and (gamma) PnL on this site and numerous others all reiterate the same thing: that the frequency at which you delta-hedge only has an effect ...
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Delta Gamma Hedging Portfolio of Multiple Options Derivation
I am trying to make the correct derivation of the Delta Gamma Hedge of a portfolio composed of a multi-option strategy, like a Straddle with the following parameters Long 1 Call K = 100, Long 1 Put K =...
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How to trade forward volatility?
What would be the best way to trade forward volatility or term structure?
One way, I think of is through gamma neutral calendar spreads. The problem with this approach is "change of ATM" and ...
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How does implied volatility affect delta and gamma for different spreads? [duplicate]
Im looking at a call butterfly spread where i am long one ITM and OTM call option, and short two ATM call options. Also i have a time spread where i am long December put and short November put.
Now ...
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Delta-Gamma neutral vs Delta-Vega neutral
Imagine that the underlying stock price is 110. The call option has a strike price of 100. The annualized volatility is 25% and the interest rate is 10%. Finally, the time to maturity is 0.5 years. We ...
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Dealer's directional open interest
This question is related to the previous question I asked here. In one of the answers, the article from Squeezemetrics that discusses the effect of GEX on the spot price of an asset was pointed out. ...
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Realizing the same PnL as Gamma Vs Vega
Consider a delta hedged option postion.
Futhermore assume that I can perfectly forecast realized volatility over the life of the option.
Vol I buy the option at = Implied Vol (IV)
Realized volatility ...
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What is gamma to do with realized volatility?
I keep hearing that gamma is a bet on realized volatility. That is, if we are long gamma then we need higher realized volatility to come in the future in order to make a profit.
from other source:
If ...
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How to use gamma theta and theta gamma ratios for managing short positions?
I'm starting to sell ATM options in order to buy the tails, and I would like to know how to use gamma/theta or theta/gamma ratio or their sum to manage and exit the short position before the gamma ...
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constant dollar Gamma for variance swap
Here is the result of Gamma for Variance swap. I think $S_t$ is the only variable in $\sigma^2_{Exected,t}.$ Then how could we get the presentation of Gamma:
$$\dfrac{1}{S_t^2},$$
there should be some ...
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Dynamic Hedging
I am reading page 126 (Chapter 8) of the book "Option Volatility and Pricing 2E" by Sheldon Natenberg and have two questions I seem to be stumped on. (The bulleted text below the charts in ...
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Optimal delta-hedging frequency when gamma scalping
Is there a practical way to calculate a delta threshold for rebalancing when gamma scalping?
I know it does not effect expected P&L, but what about optimizing for P&L sharpe ratio after ...
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Is American put Gamma always greater than the European one in the non-early-exercise domain?
Consider a pair of American and European puts with the same specifications except the former has the continuous early exercise right. Has anyone plotted the Gamma's of both as functions of the ...
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Gamma and Theta of a swaption
For a swaption, I had 2 questions:
how would I guage the PnL based on RV vs IV on a swaption?
I'm guessing its 0.5 x gamma x (RV^2-IV^2)(or realized variance - implied variance)
Not 100% sure on ...
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Is Nassim Taleb wrong about his DdeltaDvol dynamics in his Dynamic Hedging book?
if you're long OTM calls, an increase in vol would increase your delta (converges to ATM) and if you're long ITM calls, increase in vol would decrease your delta (converges to ATM as well). So OTM ...
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Swaptions Gamma Interview Questions
A while ago, I interviewed for a trader role and was given the below assignment (I didn't get the job). I wanted to revisit the questions to learn from my mistakes and be better prepared next time. ...
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If you continuously delta hedge a long option position will you be flat at expiry regardless of realized vol? [closed]
Learning about gamma and am confused about practical gamma trading strategies and struggling to understand how they can be monetized. Is all gamma just about setting limit orders above and below and ...
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Gamma PnL when hedging with implied volatility - where is the mark to market PnL?
It is well known that hedging with implied volatility involves a PnL:
$0.5*(σ^{2}_r−σ^{2}_i)S^{2}*Γ_{i}dt$
In the Wilmott paper (http://web.math.ku.dk/~rolf/Wilmott_WhichFreeLunch.pdf), they imply ...
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P&L explain for swap?
I try to make a P&L explanation of a swap from the delta, gamma, to the N instruments of the rate curve (money market, futures and swap).
I use a perturbative shock of 1bp for each instrument of ...
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Practical risk management on snowball autocallable portfolios
I am new to exotic options pricing and risk management. The scenario that I encounter is that the market maker sells snowball autocallable products(accumulated coupon) every trading day and has to ...
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Vol, Gamma, Vega -- essentially all the same?
When talking to traders I hear this sentence a lot
I am a buyer/seller of X
where X = {vol, gamma, vega}
Is X basically all the same -- they are just saying -- I think implied volatility is cheap or ...
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Can we trade theta?
The context is this theoretical result from Black-Scholes-Merton differential equation that the effects of theta and gamma cancel each other.
Equation (5.23) from the book titled "Option Trading&...
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Gamma squeeze - mathematical explanation
I am trying to understand from a mathematical and financial point of view the mechanism behind the so-called gamma squeeze. Is there a good source to read about this/ My questions are:
what are the ...
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How to forecast volatility using gamma exposure index?
Brainstorming this afternoon.
GEX is the gamma exposure index (https://squeezemetrics.com/monitor/static/guide.pdf). It's the sum of gamma exposure for call and put.
Using IV, strike and BDS you can ...
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Why does a long gamma trader sit on the bid and offer?
I have read in Bennett - Trading Volatility the following quote.
As shown above, a long gamma (long volatility) position has to buy shares if they fall, and
sell them if they rise. Buying low and ...
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Gamma, Theta, Vega, Vanna and Volga PnL under Bachelier
Is there a PDE that decomposes the daily PnL as delta, gamma, vega vanna and volga but under Bachelier model (assuming normal vol) ?
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Gamma Pnl vs Vega Pnl
Why does Gamma Pnl have exposure to realised volatility, but Vega Pnl only has exposure to implied volatility? I am confused as to why gamma pnl is affected (more) by IV and why vega pnl isnt affected ...
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For single barrier options, why is a plot of gamma so scattered compared to other greeks?
Is this to be expected or is there something wrong with the model?
I am getting scattered gamma plots for all types of barriers like U&O, D&I, etc
However a basic vanilla options has a smooth ...
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Calculate Gamma and Vega of a portfolio of convertible bonds [closed]
I am being asked to calculate the gamma and vega of an existing portfolio of convertible bonds. does anyone has a documentation of direction that i could use to get going pls? This is a premiere for ...
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Gamma of interest rate derivatives
consider an interest rate derivative whose value $V$ depends on $n$ interest rates $r_1, \dots, r_n$.
Hence $V$ is a function in $n$ variables $V(r_1, \dots, r_n)$.
My question concerns the gamma $\...
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Greeks of portfolio in response to underlying price change
I'm trying to wrap my head around Greeks, and I'm getting a little bit confused. For example, let's say my portfolio holds a long 5 month ATM call with strike \$20, and short 2 month OTM call with ...
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Can gamma of an option be greater than its delta?
I have a currency pair usdinr put option with strike price at 73.5 INR, risk free rate 0, underlying price of 75.4025, days to expiry is 15 and iv is 5.9%. Delta of this option is -0.019 and gamma is ...
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Risk-managing vanilla books (sell-side)
I am interested in learning more about how traders risk-manage books of vanilla options. I presume there should be a fairly standard list of facts. For the moment, the area of interest is FX, as ...
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What is the intuitive reason why the Gamma and the Theta tend to have the opposite sign?
Quoting Hull's book:
When gamma is positive, theta tends to be negative. The portfolio
declines in value if there is no change in S, but increases in value
if there is a large positive or ...
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Why is gamma exposed through the square of spot prices?
As per this article, "the mathematically intuitive way to expose gamma is through the square of the underlying price": https://llllvvuu.dev/blog/unbundling-gamma
Can someone explain this? ...
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Net delta and gamma profile of a put spread
I have a question regarding the description in Simon Gleadall's book -- option gamma trading which you can find a copy HERE.
The following paragraph he discussed about gamma and delta profile of a ...
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Finite Difference Method in Greeks (Options)
I need a way to approximate the analytical formula of Greeks of a generic call option using the Finite Difference Method.
For example, the FD method for Delta/Gamma is the following one:
Now, I am in ...
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Gamma-neutral delta-neutral call ratio spread
I have been looking into options strategies that minimize risk via delta neutrality. One such strategy seems to be the gamma-neutral delta-neutral call ratio spread, in which the gamma is neutralized ...
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Derivation of the Gamma approximation formula from the Delta approximation formula
The formula of $Gamma = (Vplus + Vminus - 2V0)/(V0 * dS^2)$, where
$V$ is the contract value,
$S$ is the stock price.
We also know that $Gamma = (Dplus-Dminus)/(Splus-Sminus)$,
where
$D$ is the ...
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Gamma PNL for Convertible Bond
so just trying to compute gamma PNL for some CB positions using Bloomberg data for delta/gamma.
for a CB, BBG has delta 0.74 and Gamma 0.00524. if I want to compute the delta PNL and Gamma PNL for a ...
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Delta and Gamma profile
There is an active spread option traded in ICS as described here - https://www.theice.com/products/28881205/Crude-Future-Brent-1-Month-Calendar-Spread-Options
I am ...
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Why is providing liquidity on Uniswap a "negative gamma" trading strategy?
I know the basics about options greeks, but I heard traders extrapolating the concept to portfolios composed not just of options.
Providing liquidity on Uniswap, an automated market maker (AMM) built ...
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