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11

I might be misunderstanding your question. My thoughts: being short gamma is being long volatility your comment re gamma increasing regardless of direction only holds for ATM options. For ITM options, being short gamma is being long the underlying. For OTM options, being short gamma is being short the underlying. Some graphs: Below, except as ...


11

Value has traditionally been one of the most important stock-selection signals for quantitative managers. However, since the late 2000s, following a rapid flow into quantitative investing, traditional value strategies have lost most of their predictive power and the returns generated from them have also become more volatile. The typical approach of ...


7

Being short gamma simply means that you are short options regardless of whether they are puts or calls. The most common type of investor that is willing to be short gamma is someone who sells options, also known as a premium collector. These investors commonly use strategies such as short puts, covered calls, iron condors, vertical credit spreads, and a ...


6

There's a strong theoretical argument that makes the case for active management that is also supported by empirical research. First, check out Jonathan Berk's paper "Five Myths of Active Management". The paper reads like a clever Gedankenexperiment. Starting with a theoretical approach is better than starting with an empirical approach because as Berk ...


6

Short gamma is a bet on volatility (expressed as hedging costs) not getting too large. The key concept here is that you get paid to be short gamma. Consider that any option is sold for a bit more more than its intrinsic value (the extra bit is often called volatility value.). If nothing moves, then the option ultimately expires precisely at intrinsic ...


5

You are absolutely right to point out that most proactive participants in options markets prefer to be long gamma, and it is typically reactive market makers who take the opposite side of their trades. While the typical options trader (I find it difficult to call anyone trading options an "investor") does not hedge his position, market makers will attempt ...


4

If you get paid enough theta it absolutely makes sense to be short gamma. And the closer to expiration, the faster the time-value flees. Most of the time, most people would prefer to be gamma long though. It's simply a safer bet because of uncertainty: unexpected events can seriously damage your book if you're short vol.


3

You will find elaborate answers to your question in this excellent new book: Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors by Gray & Carlisle You can find a good summary over at CXO Advisory Group: A Few Notes on Quantitative Value


3

Short gamma is being of the view that realized volatility would be less than the implied volatility for the period in which an option is valid. So if you think realized volatility in the future would be consistently lesser than implied volatility at present, then you'd be short gamma. The premium one would receive by selling an option (call or put) is a ...


3

Here couple points that at least helped to formulate a daily guide for myself: Losses are just what they are, losses. You return tomorrow to play again. But bankruptcy means game over, you are done. Thus such event is to be avoided at all cost. Long-term, equities exhibit positive drift and have outperformed other competing asset classes. However, the ...


3

'Inst. Owned' almost surely means "Institutionally Owned". With respect to the 103% ownership reported: Discrepancies caused by varying time lags in reporting ownership may skew the results Second, and perhaps most likely, is due to short selling. I might own 100 shares, lend them to Bill, and Bill might sell (short) the stock to Nancy. In this case both ...


3

An active manager can be good for a few reasons. They can scale resources much better than an individual investor, and as a result can get better execution prices and access to assets that would be impractical for some individual investors(unsponsored foreign listings comes to mind). Better firms will have tax professionals available to minimize taxes ...


2

Directly from the Berk paper Five Myths of Active Portfolio Management: "Even more surprising is the extent of what the average manager adds. The mean of the distribution in the Exhibit is 6.5%. Given a management fee of 1.5%, this means that the data are consistent with an alpha of 5% for the average manager. "Of course, investors themselves never ...


1

This is a basic utility exercise. I would guess the additional assumption you are missing to solve the exercise is that the player would be willing to accept the fair game but nothing worse. To make this a fair game, the maximal amount which could be paid to enter the game, would result in zero expected loss of utility (nobody would accept anything worse). ...


1

In the Up scenario, there is not one possible outcome. There are multiple possible outcomes within Up. This could be (i) fill and price goes up, (ii) partial fill and price goes up, (iii) no fill prices goes up. All three outcomes have positive value in expectation, with that value descending as we go from (i) to (iii). The third outcome is profitable in ...


1

I am not confident that I understand specifically what you are asking, but I hope this helps: What are theoretical approaches to model and answer this question? This question is rather broad. I will say that in comparing a random collection of purchases and sales of securities, with only the time between the transactions as varying among different ...



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