Questions tagged [gamma]

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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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89 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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0answers
62 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?
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363 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}{...
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0answers
150 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 ...
2
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0answers
47 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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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 ...
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105 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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0answers
63 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 ...
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140 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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100 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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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 ...
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72 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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1answer
47 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 ...
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72 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 ...
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Delta hedging and gamma hedging

Suppose that we are working in a Black-Scholes framework considering two European put options on a dividend paying stock. The stock has a price of 70, the stock pays dividends continuously at a yield ...