# Tag Info

Accepted

### Gamma Pnl vs Vega Pnl

For an option with price $C$, the P$\&$L, with respect to changes of the underlying asset price $S$ and volatility $\sigma$, is given by \begin{align*} P\&L = \delta \Delta S + \frac{1}{2}\...
• 20.5k

I am one of the two authors of the paper. The continuity in time of the path of the underlying suggests that at every trading time, the strategy is self-financing. In fact, if the underlying random ...
• 211
Accepted

### Is short-gamma inherently a losing strategy?

You can't lose more than you invested by writing covered puts, because you keep enough cash to cover any potential losses from the puts. That's not to say that your losses can't be substantial, of ...
• 5,628
Accepted

### Would it be possible to combine long butterfly with long straddle, achieving profit no matter the outcome?

Your butterfly is short a straddle and long a strangle. If you add a long straddle with the same strike/notional you are now just long a strangle. The payoff for a strangle is zero if the terminal ...
• 5,628
Accepted

### Why a calendar spread is a preferred strategy in a low volatility period

The main thing to keep in mind with all these different option combination strategies is that you are really trading option greeks! I think the answer to why the calender spread is so popular lies in ...
• 27k
Accepted

### What mathematical models did Harry Markopolos run to prove that Bernie Madoff 1% a month gain was a Ponzi scheme?

You can find everything you want to know about this here (and in a very readable and easily reproducible form): How Students Can Backtest Madoff’s Claims by Michael J. Stutzer (2009) From the ...
• 27k
Accepted

### What really is Gamma scalping?

Assuming all else remains equal (implied vol has not changed and very little time decay has occurred), Gamma scalping can best be explained by Gamma (or realized volatility) enhancing the value of a ...
• 5,335

### Implied volatility of a complex options position

You can guesstimate by vega weighted implied vol. This is why: Say that you have a portfolio of options with prices $P_j$. Each one of them has a different pricing function $f_j$ (as function of vol) ...
• 4,237

### What really is Gamma scalping?

Gamma scalping (being long gamma and re-hedging your delta) is inherently profitable because you make 0.5 x Gamma x Move^2 across the move from your option. (You get shorter delta on downmoves, so you ...
• 221
Accepted

Consider the case where we are interested in decomposing a continuous and piece-wise linear European payoff function $V \left( S_T \right)$ over $n$ intervals with $n + 1$ node points $S_i$ for $i = 0,... • 5,800 6 votes ### What really is Gamma scalping? As long as you live in a world where implied and realized vol are the same, there is no net profit (or loss) from gamma scalping. However, if they are different, then you make a gain or loss which is ... • 794 6 votes ### Gamma Pnl vs Vega Pnl Not sure this is a valid question! Gamma p/l is by definition the p/l due to realized volatility being different from implied. Vega p/l is by definition the p/l due to moves in implied volatility. ... • 14.1k 5 votes ### Are there any good tools for back testing options strategies? Providing my 2 cents here, listing 3 free methods below: CBOE's method: No code here, just a "white paper", thus you can code it with whatever language you desire. I kinda like this the ... • 279 5 votes Accepted ### Books on options trading with a practical bent? In my opinion there is one modern author on the subject of practical options trading who stands head and shoulders above the rest, and that is Euan Sinclair. His most recent book is Volatility ... • 14.4k 5 votes ### Why are there so many S&P 500 call options selling with strike @1000? I'm also currently working on analyzing option-implied RNDs. I'm no expert but a couple of comments: In addition to volume, you want to look at the open interest of the different strikes to conclude ... • 760 4 votes Accepted ### Exercise on American call option and dividends When dividends are continuous, they are essentially negative interest rates, so you should price options w.r.t. new interest rate$\hat r := r-d$where$r$is the original interest rate and$d$is the ... • 1,484 4 votes Accepted ### Mysterious disappearance of options from historical datasets The data has definitely not disappeared, it's a problem with your vendor. There has been a corporate action on 2014-02-27 and hence the strike prices have been adapted accordingly. According to ... • 975 4 votes ### Why/How does a hedged portfolio make profits? An Investment Bank earns a profit by selling you an option at a slightly higher price than the theoretical price, or buying it back from you at a slightly lower price. They call this "earning a spread"... • 9,117 4 votes ### Implied volatility of a complex options position First note that implied volatility only makes sense with respect to an etablished pricing model, like the Black-Scholes or Bachelier model, and it is the quantity which has to be put into a closed ... • 614 4 votes Accepted ### Shorting an option every day vs shorting only at maturity Draw a picture. For each scenario, there are obvious circumstances that the payoff for each would be better. For the N day option, the payoff would be better if there was a slow gradual decline in ... • 709 4 votes Accepted ### What instruments help me receive a premium? no, generally speaking only options has time premium. I strongly advise you to avoid mixing 2 positions (short 1 option, long another one) in your mind just because they are independent, so just ... 4 votes Accepted ### How to understand the no call or put spread arbitrage condition Let's focus on a European call option for the sake of the argument. Assume deterministic rates to keep notations uncluttered. Define$\Bbb{Q}\$ as the probability measure associated to the money market ...
• 14k

The strategy seems to be self financing because the investor's only actions are to buy stock in the market when the stock price increases to the exercise price K, simultaneously borrowing K dollars, ...
• 14.1k

• 371
Accepted

### Option arbitrage with dividends?

Fact 1: if you are not good at pricing options, of course you can create a lot of arbitrage opportunities for the rest of the market. It does not matter whether the reason is in dividends or anything ...
• 1,484