Questions tagged [gamma]
The gamma tag has no usage guidance.
79
questions
3
votes
1answer
96 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) ...
1
vote
1answer
84 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 ...
2
votes
0answers
83 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 ...
0
votes
1answer
104 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, ...
0
votes
0answers
141 views
Why is this investment strategy negative gamma?
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 ...
0
votes
1answer
67 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 ...
0
votes
0answers
45 views
Reference request for equity index gamma modeling
I read this article a while ago
https://www.zerohedge.com/markets/all-you-ever-wanted-know-about-gamma-op-ex-and-option-driven-equity-flows
and i've found a lot of success trading options using these ...
3
votes
1answer
209 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 &=...
0
votes
1answer
87 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 ...
0
votes
1answer
108 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
0answers
84 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 ...
5
votes
2answers
2k 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 ...
0
votes
0answers
100 views
Vega vs Gamma. Implied vs realized vol
I was reading the answers to this question:
Long Gamma vs Vega , but I still I feel I am missing a bit of context.
Let's say I am long an European call today. From the plots shown in the second ...
0
votes
1answer
276 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 ...
7
votes
1answer
214 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 ...
2
votes
0answers
96 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
1answer
132 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:
...
5
votes
2answers
239 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:
...
5
votes
2answers
647 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 ...
2
votes
1answer
143 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!
2
votes
0answers
787 views
Gamma PnL Formula and Break-Even volatility
When we derive the P&L of a delta hedged option we obtain:
$$
\text{P&L}=\dfrac{1}{2}\Gamma(\delta S)^{2}-\theta\delta t
$$
and setting equal to zero and rearranging we obtain:
$$
\dfrac{1}{...
1
vote
1answer
492 views
What does “Gamma profit/loss” mean?
I understand the Greeks as derivatives, but I'm very confused with terms like "Gamma profit/loss""Theta profit/loss". What do these terminologies mean? I've searched online but can't find a proper ...
2
votes
1answer
836 views
Variance of cash gamma (or dollar gamma)
Let us assume we are in the Black-Scholes model. Is there a closed formula for the variance of the cash-gamma? I define cash gamma as $CG = S_t^2 * \Gamma(t,S_t)$, assuming interest rates are 0 to ...
8
votes
2answers
763 views
Expectation of Gamma times S$^2$ in Black-Scholes model
Can somebody prove that:
$$E[S_t^2 \times \Gamma(t,S_t)] = S_0^2 \times \Gamma(0,S_0)$$
where $S_t$ follows a lognormal process as in the Black-Scholes model, and Gamma is the second derivative $\...
6
votes
2answers
1k views
Conceptual explanation of the relationship between gamma and vega plotted against delta for a European call option
I recently plotted Gamma and Vega against Delta for a European call option and found that the graphs look very similar. This makes sense to me mathematically since the two formulas are pretty much the ...
3
votes
2answers
149 views
Greeks and options hedging
Why is it that theta is sometimes taken as the proxy for gamma of the underlying asset in options hedging?
1
vote
1answer
351 views
Delta hedging/Gamma PnL
Suppose I am long USDIDR straddle with my start of the day delta being USD10m long IDR and USDIDR gamma being $5m.
There is a 1% intra-day IDR strengthening, so my delta becomes roughly long IDR 15m....
1
vote
3answers
143 views
How to compute gamma for at-the-money regular calls and puts when they approach expiration to avoid explosion of portfolio's gamma?
When and at-the-money regular call or put approaches expiration, gamma tends to infinity. However, for practical purposes, there is only a finite change in delta. The problem is that if any of the ...
7
votes
1answer
1k views
Is short-gamma inherently a losing strategy?
With regards to a recent blowup of optionsellers.com - several analysts (specially on Quora) are blaming it on their strategy of being short gamma i.e. selling options. Is it correct to call short-...
0
votes
1answer
650 views
Delta-Gamma VaR question on inputs (do I need only one delta or the delta for the past 500 days?)
When calculating a VaR using the Delta-Gamma approach, I am supposed to use this formula:
∆(V) = Delta * ∆(X) + 0.5 * Gamma * ∆(X)²
where:
∆(V) = change in value of the asset in portfolio
∆(X) = ...
8
votes
1answer
977 views
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. ...
1
vote
0answers
151 views
Can prediction of realized volatility for next day improve delta hedging (gamma scalping)?
Im quite confused. As I understand from standard delta PNL of option + underlying position, pnl is equals to difference between realized and implied vol weighted by gamma.
However, as I understood, ...
0
votes
1answer
670 views
Bucketed gamma for swaptions
For a long 7Y1Y payer swaption, I understand that the overall gamma will be positive.
I see gamma to be positive in 7Y tenor and negative in 8Y - why would that be the case?
Intuitively, how would ...
2
votes
0answers
165 views
Beginner question on Black Scholes
Would you please confirm whether my understanding is correct please? (Sorry a lot of questions...)
1) BS is derived based on the assumption that during an infinitesimal time, we can replicate the ...
11
votes
2answers
11k views
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 ...
0
votes
1answer
375 views
If you have a delta-hedged position and you're short gamma, why are spot price movements bad?
I simply can't wrap my head around the concept of Gamma. I've read multiple sites and explanations and for some reason can't wrap my head around the logic, so I feel that it'll really help for me to ...
3
votes
2answers
1k views
Gamma/delta dynamics in the Black Scholes model and it's relation to PnL (Basic of option theory)
If we are in a Black Scholes setup and a I have a Call option and hedged it by shorting delta amount of its underlying.
What does the second derivative of the call with respect to Price of the ...
2
votes
2answers
688 views
Gamma portfolio trading
It is being said that in a long-gamma portfolio, you follow a buy-low sell-high strategy for the underlying stock, which causes you to make profit. The Theta for this portfolio is negative. But it is ...
2
votes
1answer
431 views
construct an option portfolio on a single asset that is both Long Gamma and short vega
everyone, I have come across this question. How can we construct a portfolio that is both Long Gamma and short Vega and how do we actually hedge long Gamma/short vega position?
12
votes
3answers
5k views
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 $S$...
2
votes
0answers
48 views
Calculate latest underlying price (or option), given new option (or underlying) market price?
Given a reference underlying price, reference option price, delta and gamma, if I receive a new underlying/option price what equation should I use to calculate the respective option/underlying price (...
5
votes
2answers
4k views
American Options relation between greeks
Considering an American option in a Black-Scholes model, is there a relation between Vega and Gamma as it holds in the European case?
I am aware an exact relation would be difficult to find. But in ...
1
vote
0answers
115 views
gamma-weighted SOIR
I came across a term 'gamma-weighted SOIR' several times recently. it seem like an old term on gamma imbalance. could someone care to explain what this is and the rationale behind it?
1
vote
0answers
2k views
Short Call Hedge. Options and gamma trading
Let’s say a trader sells a Short Call with strike 100 (for making profit with the premium) at-the-money (for highest extrinsic value there). For hedging until expiration, he buys the underlying share ...
7
votes
4answers
9k views
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 ...
6
votes
0answers
2k views
Gamma Imbalance / Exposure
I am currently writing my thesis about the lack of volatility / changing market structure we see nowadays on the financial market. I believe an important factor in this development is the delta-...
2
votes
1answer
396 views
Gamma of a Lookback Option
From this book, http://docs.finance.free.fr/Options/Exotic_Options_Trading.pdf,
it states that
The gamma profile of a Max lookback option becomes intuitive when
viewing it as a ladder option. ...
2
votes
0answers
61 views
What should $T$ be when gamma trading?
I am studying some gamma trading, and there's one thing I don't understand. On the option we are hedging, what should its expiry $T$ be, and for how long should we do the trade?
What I mean is, is it ...
2
votes
1answer
113 views
How does gamma trading depend on $K$?
If we think realized vol > implied vol, then we might go ahead and delta hedge a call, hoping that profits from gamma outweigh the decay.
Question: What should $K$ be on the call? ATM? If so, why? ...
6
votes
1answer
9k views
Proof of gamma profit formula
http://www.volcube.com/resources/options-articles/gamma-hedging-trading-strategies-part-i/
I would like to have proven to me the above formula, mostly because I don't quite understand it. The formula ...
