In the book of De Weert he approximates the price with a strip of knock-outs. For example the lookback call with fixed strike pays the (max(S) - K)+, is approximated by a strip of knockout calls with a rebate. So whenever the stock sets a new high, another call knocks out and you receive your rebate. In his example the rebates are 1 cent apart. So if the stock moves from $\\\$4$ to $\\\$50$, you will have collected $\\\$5$ in rebates.

Anyways:

• do you agree that a knock-out call while it is a live is long gamma?
• do you agree that a barrier option that is knocked out has no gamma?
• do you agree that a barrier option has more gamma when spot is closer to the strike?

Assuming you agree with the 3 bullets above. you can see that once the stock goes up and knocks out a few barrier options. and then spot drops, the strip of barriers will have less gamma.

In the book of De Weert he approximates the price with a strip of knock-outs. For example the lookback call with fixed strike pays the (max(S) - K)+, is approximated by a strip of knockout calls with a rebate. So whenever the stock sets a new high, another call knocks out and you receive your rebate. In his example the rebates are 1 cent apart. So if the stock moves from $\\\$45$ to $\\\$50$, you will have collected $\\\$5$ in rebates.

Anyways:

• do you agree that a knock-out call while it is a live is long gamma?
• do you agree that a barrier option that is knocked out has no gamma?
• do you agree that a barrier option has more gamma when spot is closer to the strike?

Assuming you agree with the 3 bullets above. you can see that once the stock goes up and knocks out a few barrier options. and then spot drops, the strip of barriers will have less gamma.

In the book of De Weert he approximates the price with a strip of knock-outs. For example the lookback call with fixed strike pays the (max(S) - K)+, is approximated by a strip of knockout calls with a rebate. So whenever the stock sets a new high, another call knocks out and you receive your rebate. In his example the rebates are 1 cent apart. So if the stock moves from $4 to $50, you will have collected $5 in rebates.

Anyways:

• do you agree that a knock-out call while it is a live is long gamma?
• do you agree that a barrier option that is knocked out has no gamma?
• do you agree that a barrier option has more gamma when spot is closer to the strike?

Assuming you agree with the 3 bullets above. you can see that once the stock goes up and knocks out a few barrier options. and then spot drops, the strip of barriers will have less gamma.

In the book of De Weert he approximates the price with a strip of knock-outs. For example the lookback call with fixed strike pays the (max(S) - K)+, is approximated by a strip of knockout calls with a rebate. So whenever the stock sets a new high, another call knocks out and you receive your rebate. In his example the rebates are 1 cent apart. So if the stock moves from $\\\$4$ to $\\\$50$, you will have collected $\\\$5$ in rebates.

Anyways:

• do you agree that a knock-out call while it is a live is long gamma?
• do you agree that a barrier option that is knocked out has no gamma?
• do you agree that a barrier option has more gamma when spot is closer to the strike?

Assuming you agree with the 3 bullets above. you can see that once the stock goes up and knocks out a few barrier options. and then spot drops, the strip of barriers will have less gamma.