Systematic Scalping: A reference approach to daily gamma scalping

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As a follow-up to my previous article on “Gamma Scalping Cypress Semiconductor”, I take a look at an alternative approach to gamma scalping. The initial article elicited many questions regarding the timing or triggers that prompt delta hedging. In this article I compare our initial, ad lib hedging results with a more systematic strategy that hedges (i.e. neutralizes) the position delta once-a-day at the closing price. This more systematic approach will serve as a reference to evaluate the efficacy of the ad lib approach to hedging.


Love Gamma? Where to find the highest gamma to theta ratio

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If you’re an options traders that likes to get a lot of bang for your buck, here are two things to look for in an underlying security that can help maximize the ratio of gamma to theta in your options position.


When To Hedge Delta: Why There's No Good Answer

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In the course of explaining delta-neutral trading strategies, the question that inevitably arises is when to hedge the net position delta. It’s a great question, but a question with no good (i.e. definite) answer.


Theta: A Detailed Look at the Decay of Option Time Value

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Of all the option sensitivities, or Greeks, there is likely none that is obsessed over by beginning options traders as much as theta. It seems that this obsession largely stems from a fear that they might be the sucker that gets stuck owning some rotting, soon-to-be worthless option contract. Given all this obsessing, one might expect a better understanding of theta. Unfortunately, many beginning and experienced option traders alike fall prey to generalities concerning the nature of theta. Hopefully this article will provide some insight into the specifics of time decay.


Volatility, Price and Delta: The Effects of Implied Volatility and Underlying Price on Delta

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For options traders trying to understand how the value of an option might change given a change to one of the pricing model components, the obvious source for answers are the option sensitivities, otherwise known as the “Greeks”. What’s not as well know is that there are second-order sensitivities that can help explain how these first-order sensitivities change given a change to one of the pricing components. “Vanna” is a second-order sensitivity which describes the change in delta given a change in volatility.


Gamma Scalping Cypress Semiconductor: An Example of Trading a Delta Neutral, Long Gamma Options Position

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In one of today’s option mentoring sessions, one of the topics covered was the process of gamma scalping a delta neutral, long gamma options position. The client was having some difficulty thoroughly understanding the concept. To better explore the topic, we decided to simulate a very simple long gamma options position in Cypress Semiconductor (CY), and then to gamma scalp the underlying security, keeping the net position delta neutral.


Vertical Spread Parity: (Or why there's nothing special about credit vertical spreads)

          

One of the first spreading strategies normally taught to beginning options investors is the vertical spread. This is a spread between two calls (or two puts) with the same expiration date, but differing strike prices. The strategy gets its name from the fact that the prices for each leg of the spread are typically listed vertically, one above the other, on a traders screen.

It’s a basic option strategy, but it has many desirable qualities, not the least of which is a clear and easy to define risk/reward profile. It tends to be a popular strategy amongst options newsletters. Unfortunately, many newsletters seem to suggest only trading vertical spreads in certain ways, or seem to imply that certain vertical spread strategies are superior to others. The fact is that there’s no secret sauce. There’s nothing special about selling (credit) vertical spreads that makes it more profitable than buying (debit) vertical spreads. In fact, it can be easily shown that they’re effectively the same strategy.