Chapter 40: Advanced Concepts 
FIGURE 40-1 8. 
Trading long gamma, position delta. 
6000 
4000 
2000 
"' ~ 01---------,-----~rr------,,-----
.s::. 
(J) 
-2000 
-4000 
-8000 
-8000 
55 65 
Stock Price 
899 
position. In the preceding position, the strategist wanted to be gamma long, but 
neutral with respect to delta and volatility. Suppose he not only expects price 
movement (meaning he wants positive gamma), but also expects an increase in 
volatility. If that were the case, he would want positive vega as well. Suppose he 
quantifies that desire by deciding that he wants to make $1,000 for every one 
percentage increase in volatility. The simultaneous equations would then be: 
0.050lx + 0.0306y = 10 (gamma) 
0.089x + 0.147y = 10 (vega) 
The solution to these equations is: 
X = 243, y = -80 
Furthermore, 8,500 shares would have to be sold short in order to make the position 
delta neutral. The resulting position would then be: 
Short 8,500 XYZ 
Long 243 March 60 calls 
Short 80 June 60 calls 
Delta: neutral 
Gamma: long 1,000 shares 
Vega: long $1,000 
Theta: long $630