16 lines
1.1 KiB
Plaintext
16 lines
1.1 KiB
Plaintext
The immediate delta of this trade is flat, but as the stock moves up or
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down, that will change, presenting gamma-scalping opportunities. Gamma
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scalping is the objective here. The position greeks in Exhibit 13.1 show the
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relationship of the two forces involved in this trade: gamma and theta.
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EXHIBIT 13.1 Greeks for 20-lot delta-neutral long call.
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The relationship of gamma to theta in this sort of trade is paramount to its
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success. Gamma-scalping plays are not buy-and-hold strategies. This is
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active trading. These spreads need to be monitored intraday to take
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advantage of small moves in the underlying security. Harry will sell stock
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when the underlying rises and buy it when the underlying falls, taking a
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profit with each stock trade. The goal for each day that passes is to profit
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enough from positive gamma to cover the day’s theta. But that’s not always
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as easy as it sounds. Let’s study what happens the first seven days after this
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hypothetical trade is executed. For the purposes of this example, we assume
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that gamma remains constant and that the trader is content trading odd lots
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of stock. |