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Let us say I bough a call calendar spread. Now, at expiry of the short option, the underlying has decreased significantly, and I am approaching my max loss(i.e both the options are close to 0).

In this situation, what should I do to mitigate risk/hedge my position? Except for closing it for a loss and except for rolling it into the future?

The position is still delta neutral, so this confuses me. Because most position adjustments are geared towards making the position delta neutral. But this position is already delta neutral.

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Maybe you need to make your position gamma neutral in the first place.

Once the underlying has decreased significantly, if you weren't delta and gamma neutral in the first place, you can't prevent a loss.

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  • $\begingroup$ Thanks. How to make it gamma neutral? $\endgroup$
    – Victor123
    Mar 1, 2015 at 5:03
  • $\begingroup$ It is actually quite difficult in general to make a positon gamma neutral. In practice, traders only adjust their delta on a regular basis. In your case, your gamma is negative so you would have to buy shares to make it neutral, but then your delta would be positive so... $\endgroup$
    – Dark
    Mar 1, 2015 at 10:41

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