# Questions tagged [gamma]

The tag has no usage guidance.

104 questions
Filter by
Sorted by
Tagged with
109 views

### 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 ...
62 views

### 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 ...
192 views

### 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 ...
268 views

### 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&...
249 views

### 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 ...
• 540
553 views

### 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 ...
• 43
195 views

### Cross Gamma PnL Formula

sort of dumb question. I understand well the relationship between Gamma/Theta pnl for options on single underliers. I'm (attempting) to move onward and upward to options on baskets. Conceptually, I ...
277 views

### 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) ?
397 views

### 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 ...
237 views

### 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 ...
• 113
98 views

### Calculate Gamma and Vega of a portfolio of convertible bonds

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 ...
• 161
110 views

### 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 ...
• 141
1 vote
184 views

### 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 (...
1 vote
153 views

• 1,386
387 views

### Relationship between time decay and gamma

In a paper titled Investing in Volatility published in 1998 by Emanuel Derman, Michael Kamal, Iraj Kani, John McClure, Cyrus Pirasteh, and Joseph Z. Zou, I found the following assertion (on page 9) ...
• 540
1 vote
375 views

### Meaning of Rebalancing the Gamma in Options?

What does rebalancing the gamma mean? In the Book: Dynamic Hedging at the beginning says: Rebalancing the gamma corresponds to buying and selling the underlying security in order to replicate the ...
1 vote
343 views

### 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 ...
347 views

### Gamma and Gamma Hedge [closed]

I have a very basic question: Is this gamma value has something to do with the gamma hedge? In delta hedge, it's done by buying/selling delta amount of underlying. But in textbook, for a put option, ...
• 11
1 vote
706 views

### 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 ...
211 views

### Realizing profit with Gamma Trading doubt

Lets suppose we have a delta-neutral portfolio and that we want to trade the gamma. If we are long gamma, we can profit from every rebalancing to keep the portfolio delta-neutral. Lets suppose the ...
• 65
366 views

### Gamma PnL from Itô's Lemma derivation

The change in a call portfolio ($f$), derived from Itô's Lemma, is: \begin{align*} \left( \frac{\partial f}{\partial t}+\frac{1}{2}\sigma^2S^2\frac{\partial^2 f}{\partial S^2}\right)\mathrm{d}t &=...
• 65
226 views

### Long positions (call or put) have positive gamma, and short positions (call or put) have negative gamma

I was reading a lot about the idea that long positions (call or put) have positive gamma, and short positions (call or put) have negative gamma. But I couldn't understand why. In "Bunds and Bund ...
• 101
498 views

### Historical PNL using Taylor Expansion for Gamma Ladders

I have DV01 and Gamma Ladder for IR Swaptions and the historical market data of the underlying swap curve. Can someone please help me understand how to calculate historical PNL using taylor expansion ...
1 vote
174 views

### Vega hedging swaption with caplets - precisely, what will go wrong?

I am trying to form a kind of unified perspective of how (vega) hedging an exotic with vanillas, or hedging a 'basket option' with vanillas will go wrong. So in particular, I want to be able to ...
• 1,662
4k views

### Is there anywhere I can read the paper, "The Gamma-Vanna-Volga Cost Framework for Constructing Implied Volatility Curves"

Hello there was a paper published by: M. Arslan, G. Eid, J. El Khoury and J. Roth titled "The Gamma-Vanna-Volga Cost Framework for Constructing Implied Volatility Curves" (2009). I believe they ...
• 167
2k views

### How does delta-gamma VaR work in practice and when can it be preferable to Monte-Carlo VaR?

So I will start off by just stating my understanding of the two methods through some examples and lead that into my question. Hopefully it is correct but if not then perhaps the answer to my question ...
• 788
350 views

### Gamma-Vega Neutral Portfolio Not Possible with Only 3 Options

Let's say we have sold a call option, x, on a share and we have 2 other call options, y & z, with different strikes and maturities to try and achieve a portfolio that is both Gamma and Vega ...
• 173
233 views

### Are there trades that long gamma (convexity) and short volatility at the same time?

Likewise, are there trades that short gamma and long volatility at the same time? Under fixed income context, are there trades that short convexity and long volatility at the same time?
1 vote
290 views

### Making portfolio Delta and Gamma neutral using 2 derivatives

We have an option portfolio with delta =2 and gamma 3 and we want to making this portfolio delta and gamma neutral using two derivatives D1 and D2: ...
405 views

### Gamma for ATM options with low spots

I'm trying to compute gamma for a vanilla call with spot and strike equal to 0.001. BLACK & SCHOLES formula gave me a value of 554.761 for gamma which is a very high. I have then two questions: ...
1k views

### Numeric example to understand the effect of option gamma

Gamma of an option is the second partial derivative of the theoretical value of an option wrt the underlying. It should be the rate of change of Delta wrt to a small change on the underlying. However ...
• 101
343 views

### How to prove Gamma is the same for a European call and European put with the same inputs?

I saw from a text "From put-call parity, call and put with the same inputs have the same gamma", but I don't see how put-call parity is related to Gamma. Can someone explain? Thanks!
• 121
4k views

• 101