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training_data/curated/text/dd780f91f25d99f7a04b3539e0c508166e202c4b6148a4c3feb941037efa9512.txt

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+872 Part VI: Measuring and Trading Volatility 
+shown in Table 40-9. However, since both options are sold, each sale places negative 
+gamma in the position. 
+The usefulness of calculating gamma is shown by this example. The initial posi­
+tion is NET short only 100 shares of XYZ, a very small delta. In fact, a person who is 
+a trader of small amounts of stock might actually be induced into believing that he 
+could sell these 100 straddles, because that is equivalent to being short merely 100 
+shares of the stock. 
+TABLE 40-9. 
+Position delta and gamma of straddle sale. XYZ = 88. 
+Option Position Option Position 
+Position Delto Delta Gamma Gamma 
+Sell l 00 July 90 calls 0.505 -5,050 0.03 -300 
+Sell 1 00 July 90 puts 0.495 +4,950 0.03 -300 
+Total shares - 100 -600 
+Calculating the gamma quickly dispels those notions. The gamma is large: 600 
+shares of negative gamma. Hence, if the stock moves only 2 points lower, this trad­
+er's straddle position can be expected to behave as if it were now long 1,100 shares 
+(the original 100 shares short plus 1,200 that the gamma tells us we can expect to get 
+long)! The position might look like this after the stock drops 2 points: 
+XYZ: 86 
+Position 
+Sold 1 00 July 90 calls 
+Sold 100 July 90 puts 
+Option 
+Delta 
+0.44 
+0.55 
+Position 
+Delta 
+-4,400 
++5,500 
++ 1 , 100 shares 
+Hence, a 2-point drop in the stock means that the position is already acquiring 
+a "long" look. Further drops will cause the position to become even "longer." This is 
+certainly not a position - being short 100 straddles - for a small trader to be in, even 
+though it might have erroneously appeared that way when one observed only the 
+delta of the position. Paying attention to gamma more fully discloses the real risks. 
+In a similar manner, if the stock had risen 2 points to 90, the position would 
+quickly have become delta short. In fact, one could expect it to be short 1,300 shares 
+in that case: the original short 100 shares plus the 1,200 indicated by the negative 
+gamma. A rise to 90, then, would make the position look like this: