Chapter 40: Advanced Concepts 893 
change in the securities involved in the position. There is one absolute truism and 
that is that the serious strategist should be aware of the risk his position has with 
respect to at least the four basic measures of delta, gamma, theta, and vega. To be 
ignorant of the risk is to be delinquent in the management of the position. 
TRADING GAMMA FROM THE LONG SIDE 
The strategist who is selling overpriced options and hedging that purchase with other 
options or stock will often have a position similar to the one described earlier. Large 
stock movements - at least in one direction will typically be a problem for such 
positions. The opposite of this strategy would be to have a position that is long 
gamma. That is, the position does better if the stock moves quickly in one direction. 
While this seems pleasing to the psyche, these types of positions have their own 
brand of risk. 
The simplest position with long gamma is a long straddle, or a backspread 
(reverse ratio spread). Another way to construct a position with long gamma is to 
invert a calendar spread - to buy the near-term option and to sell a longer-term one. 
Since a near-term option has a higher gamma than a longer-term one with the same 
strike, such a position has long gamma. In fact, traders who expect violent action in 
a stock often construct such a position for the very reason that the public will come 
in behind them, bid up the short-term calls (increasing their implied volatility), and 
make the spread more profitable for the trader. 
Unfortunately, all of these positions often involve being long just about every­
thing else, including theta and vega as well. This means that time is working against 
the position, and that swings in implied volatility can be helpful or harmful as well. 
Can one construct a position that is long gamma, but is not so subject to the other 
variables? Of course he can, but what would it look like? The answer, as one might 
suspect, is not an ironclad one. 
For the following examples, assume these prices exist: 
XYZ: 60 
Option 
March 60 call 
June 60 call 
Price 
3.25 
5.50 
Delta 
0.54 
0.57 
Gamma 
0.0510 
0.0306 
Theta 
0.033 
0.021 
Vega 
0.089 
0.147 
Example: Suppose that a strategist wants to create a position that is gamma long, but 
is neutral with respect to both delta and vega. He thinks the stock will move, but is 
not sure of the price direction, and does not want to have any risk with respect to