Questions tagged [gamma]
The gamma tag has no usage guidance.
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1answer
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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....
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3answers
72 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 ...
5
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1answer
210 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-...
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1answer
51 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) = ...
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1answer
221 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. ...
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0answers
64 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, ...
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1answer
164 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 ...
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0answers
90 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 ...
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2answers
1k 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 ...
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1answer
135 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 ...
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2answers
412 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 ...
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2answers
203 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 ...
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1answer
228 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?
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3answers
2k 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 $S$...
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0answers
42 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 (...
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2answers
1k 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 ...
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47 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?
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997 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 ...
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4answers
3k 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 ...
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0answers
623 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-...
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1answer
194 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. ...
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0answers
53 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 ...
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1answer
88 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? ...
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1answer
5k 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 ...
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0answers
52 views
Stress Test for gamma FX portfolios?
How can I create scenarios to stress gamma FX portfolios? If I shock the underlying for example +/-10%, then I gain in both scenarios. I get to capture some losses if I shock the implied volatility. ...
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2answers
852 views
Vega and Gamma signs
Do vega and gamma always have the same sign (ie both positive or both negative)? Under what circumstances can they have opposite signs?
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1answer
514 views
Interpretation of an option gamma larger than one
I am working on an option hedging simulation. In this context, I wanted to expand the simulation to include gamma. For testing purposes, I used among others the natural gas futures. When I calculate ...
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1answer
615 views
How frequently do traders rebalance their gamma hedges?
Say, for instance, that you've set up a delta-neutral straddle (i.e. you are long volatility, short time decay) and want to dynamically hedge your gamma in order to offset losses due to theta. Is ...
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1answer
4k views
Link between Vega and Gamma
"The vega is the integral of the gamma profits ( ie expected gamma rebalancing P/L) over the duration of the option at one volatility minus the same integral at a different volatility...Mathematically,...
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1answer
172 views
Using limit orders or stop orders and gamma
From Dynamic Hedging by Taleb:
Risk Management Rule: Option trader lore states that when long gamma, use limit orders. When short gamma, use stop orders.
I cannot understand why this is and the ...
0
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1answer
51 views
Known future volatility and difficulty in predicting final P/L
I have started Chapter 1 of Dynamic Hedging by Taleb and it starts by saying
"Even if traders knew the exact future volatility but hedged themselves (rebalanced the gamma) at discretely spaced ...
3
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1answer
160 views
Approximation of an option price
The value of an option in the money is 11.50 Euros. The parameters of the market are:
-The price of the underlying stock: 81.4 Euros.
-The volatility ofthe underlying is : 34.65 %
The ...
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1answer
551 views
Estimating profit/loss of a Gold Futures option using Theta and Gamma
HELP!
I am trying to find how much the underlying price of a gold futures option must move in order to breakeven on owning an option for a day.
I was hoping someone versed in pricing options could ...
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0answers
76 views
Intraday Value at Risk approximations
We use full valuation of derivatives portfolios using scenarios from historical data.
For simple contracts, this is relatively fast.
For contracts requiring monte carlo simulation, this becomes ...
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3answers
10k views
How do we know if the volatility which is quoted in market is Normal (Bachelier model) or log normal (Black 76)?
In markets, many instruments are quoted in volatility, but how we can tell what kind of volatility is this? Is it normal volatility, or lognormal volatility. because it affect our hedging positions.
...
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2answers
714 views
is there an analytical proof that vega-neutral also provides (gamma & theta) neutral?
I've read an answer here that say if your security has vega, then it has gamma and theta.
is there an analytical proof that vega-neutral also provides (gamma & theta) neutral?
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1answer
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Gamma Imbalance Explanation
Can someone please give me an explanation as to what put-call gamma imbalance specifically refers to (imbalance of what?), and why they may exacerbate volatility from a market perspective, and why the ...
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2answers
2k views
VaR calculation methods of options
I am a little bit confused about VaR in Options and I need a clarification for.
I collected the following formulas, can you suggest what is the best formula and explain me why, please?
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1answer
90 views
In this scenario could gamma be higher for OTM options?
Let's say there is a $1 stock, with say 1 day to expiration. The 1.5 strike call, is probably a 0 delta at this point; however, a 1 point increase would mean the stock would be at trading at 2 dollars;...
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3answers
2k views
Greeks: Why does my Monte Carlo give correct delta but incorrect gamma?
For a vanilla European call, my Monte Carlo method gives the right option price and delta but the wrong gamma. In particular, the value of gamma varies wildly each time I run the method. I estimate ...
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1answer
1k views
Compute cross-gamma
I am trying to use delta-gamma method with montecarlo simulations to calculate the VAR of a portfolio consisting in options and equities.
To use the method I need to compute a gamma matrix, that has ...
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2answers
647 views
Delta and gamma neutral
A financial institution currently has a portfolio with delta of 450 and gamma of
6,000. A traded option is available with a delta of 0.6 and a gamma of 1.5. How
could the portfolio be made both delta ...
1
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1answer
183 views
Delta-Gamma Neutral portfolio, derivation issue
Let $C$ be an option on an underlying $S$. I want to construct a portfolio $V$ using another asset $C_0$ such that the delta and the gamma of $V$ is the same as the delta/gamma of $C$, in order to ...
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1answer
210 views
European vanilla call/put option, when volatility increases, how will gamma changes?
according to the BS formula, $\gamma = \frac{N'(d_1)}{S_0\sigma\sqrt{T}}$, gamma will decrease when volatility increase.
How does it intuitively make sense? rather than from the formula.
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1answer
8k views
Gamma and delta P&L example question
I'm trying to get a basic understanding of this example delta ladder
...
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1answer
2k views
What is the formula for beta weighted delta and gamma?
I am trying to calculate the beta weighted delta and gamma for a portfolio of options of different underlying stocks, but I can't seem to find the correct formula.
Can someone point me to it or a ...
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0answers
96 views
Testing for the presence of a positive or negative gamma effect
I am currently analyzing a statistic that I believe will have the effect of hedgers having a positive or negative gamma position in certain stocks. In the case where I believe hedgers have positive ...
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2answers
4k views
calculate gamma value using finite difference method
I try to use the finite difference method to get the approximately gamma value, but there is an issue I can't solve.
First, I set $h$ to 1 basis point of underlying asset value, but the result is not ...
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3answers
6k views
Gamma vs. Volatility Risk
Original Question: What is the link between Gamma and the Volatility Risk?
It leads me to ask:
- What is the Volatility Risk definition and what are the good practices to measure it?
Thinking about ...
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1answer
2k views
Portfolio Greek Exposure Equations
What are the calculations for calculating greek exposures in a portfolio of equities and equity options? I think I have them but I want to be sure. Are these correct (for vanilla options)?
...
