gamma scalping bias after daily settlement

[etem_tezcan]

Hello
I heard that gamma scalping activity takes place after daily settlement prices of financial instruments are announced. I know that gamma scalping is the activity to balance the delta of options to stay delta neutral. Let's say I am long in EURUSD call and EURUSD rallied today. My long call position gained value thus I am selling some EURUSD to neutralize my delta.
I wonder how can one forecast the daily bias for gamma scalping activity.

 

[maxima]

There are loads of research and nobody has a definitive answer. From what I know the gamma hedge is largely game of experience

 

[VegasClub]

There are loads of research and nobody has a definitive answer. From what I know the gamma hedge is largely game of experience

dd

 

[VegasClub]

gamma scalping is only a headword ... or slogan.. more not. 10 traders 10 different minings to gamma scalping what it should be...

 

[option911]

As a former floor trader I can tell you that everyone scalps gamma differently. Some use the options, some use stock, some use STD, some use delta. You never know it is really trader to trader.

One thing traders need to know is what their daily 'nut' is. There is also some interesting data on gamma and the weekly options

 

[tripleogstar]

Well lets get one thing clear. IF you are gamma hedging, you are trading the underlying, that is a FACT. You can trade options to reduce or increase your gamma exposure but it is not what you call gamma hedging. If you are long calls (or long any options) you are long gamma, and as the market moves up or down you get longer or shorter deltas, and to reduce this delta you would buy or sell the underlying, full stop. The time at which this happens varies from desk to desk, some desks hedge up in the morning, afternoon, intraday. A lot of it depends on what method of calculation they are using for realised vol. If they are using close-close calculations of realised vol, it is likely they will hedge their deltas at the end of each trading day.

 

[maxima]

underlying doesnt have gamma. gamma of stocks equal zero.

where did you go to school again?

 

[tripleogstar]

dude, get out your hull book and learn something. Ask yourself, what is gamma? Then you will know what I am talking about. You can only use the underlying to hedge your gamma DUMB ASS, gamma changes your delta and therefore you need to buy/sell the underlying to become delta neutral. If you want to REDUCE/INCREASE your gamma you need to trade options, but your also bringing with it additional risks like vega. If you are long a 3month straddle and you want to make money on an increase in implied vol you need to hedge your gamma (try staying as delta neutral as possible-by buying/selling the underlying depending on the market moves) not bloody buy or sell more options to hedge your gamma! you'll end up with a ridiculous position which will make no money. Understand your options theory before you question me maxima

 

[maxima]

gamma is second derivative of delta. i dont need hull for that. underlying has 1 delta all the time. underlying has 0 sensitivity to gamma at any given time you DUMB ****.

If you want to REDUCE/INCREASE your gamma you need to trade options,

that was my point precisely.

delta neutral is a different story. You **** FACE
..

erm.. what else curse words I know.. mm sorry run out of crap in my system.. but I am sure you can give me a lesson in these... obviously gamma is not your strongest side. but swearing on public boards - that is much easier!

dude

 

[tripleogstar]

ok well lets just make one thing clear, i just hate people commenting on topics they know nothing about. If you want to gamma hedge, you buy or sell the underlying, WHY? because gamma is what causes your delta to change and so in order to make that delta 0 again, you need to trade the underlying.... RESULT? Gamma/delta hedging, the terms are used interchangeably in the industry. REDUCING OR INCREASING your gamma is more of a position management thing for large funds who want to own the best gamma and so trade out of it in certain products and perhaps buy it in another. If someone sitting at home wants to trade options to trade vol, you DO NOT buy or sell options to simply get rid of your gamma as you can never have 0 gamma when trading options unless it is a waaay OTM option in the front month

 

[tripleogstar]

o just spotted another mistake in what you said which shows you have NO IDEA. Gamma is not the second derivative of delta, it is the second derivative of the derivative!! Common dude, just get the textbook out again, please.

 

[maxima]

I agree that in attempt to make more money from delta hedging trading more underlying using gamma is a viable strategy (which by the way was described by option911 a year or two ago).

I havent said - give up on trying to make money using sensitivity to gamma.

what i said was very simple - stocks has zero gamma.

 

[maxima]

o just spotted another mistake in what you said which shows you have NO IDEA. Gamma is not the second derivative of delta, it is the second derivative of the derivative!! Common dude, just get the textbook out again, please.

cmon dude it was just simple mistelling. this is obvious.

 

[maxima]

Gamma is not the second derivative of delta, it is the second derivative of the derivative

delta is first derivative of price. gamma is second derivative of price. second derivative of derivative will be 3d order derivative and will be a sensitivity to change in gamma. which I never heard anyone interested in.

If you saw real trading desk and went through some Hull it doesnt mean the others are peasants from Mongolia.

give it up. you hedge your gamma in whatever way you like. I am happy for you to make money on it.

 

[tripleogstar]

delta is first derivative of price, price of what? A DERIVATIVE (the sensitivity of an options price to the underlying), and therefore delta is the first derivative of a derivative. I agree mate, I am not saying your beneath me just because I know about options trading, I am sure you know more than me about other products, it's just good to have the right information out there, there could be someone who really needs this info and would obviously be nice for them if it is accurate.

 

[maxima]

its quite simple. speed is 1st deriv of length. acceleration is 1st deriv of speed and 2nd deriv of length. I even googled for a link so you can believe in anything what I am saying.

http://wearcam.org/absement/Derivatives_of_displacement.htm

delta is rate of change in price hence it called derivative of price. Hull expects people have some education so he doesnt say every word and his book is hardly a textbook.

 

[tripleogstar]

YES mate but the price you are referring to is the PRICE OF THE DERIVATIVE I.E THE CALL OR PUT OPTION. Therefore simple logic follows and you can state the delta is techincally the derivative of the derivative ( or the derivative of the price of the call/put options - call/put options are derivatives)

 

[maxima]

P.S. Delta is a sensitivity to the price of underlying. And not to the option price.

Hence our little discussion is concluded here.

 

[tripleogstar]

LOL ooo my god when will you get it. DELTA IS THE SENSITIVITY OF THE DERIVATIVE, TO THE PRICE OF THE UNDERLYING!

 

[tripleogstar]

let me give you a basic example since it is clear your are incompetent. Stock A = 100, 110 strike call option = 5 (for example) with a detla of say 30%, the price of stock A goes to 105, the new price of the call option is 5 + 0.3*(change in underlying = 5), therefore the new price of the call option is 6.5. As a result of the underlying moving, the call option price has moved by the delta*change in underlying. Therefore it is the option price which changes as a result of the underlying moving.