gamma scalping bias after daily settlement

[tripleogstar]

please tell me you understand now, coz if you don't I give up and you should actually be banned from this forum for being so damn incompetent

 

[drudge]

please tell me you understand now, coz if you don't I give up and you should actually be banned from this forum for being so damn incompetent

This whole argument can be boiled down to a simple distinction:

Triplelogstar is referring to scalping gamma, Maxima is talking about hedging gamma.

NOT THE SAME THING.

ONE INVOLVES REALISING GAMMA, THE OTHER INVOLVES REDUCING IT.

END OF.

 

[derivstradaa]

tripleogstar is an idiot.

You do not hedge gamma with stock, I dont know where you got that from but it sounds like you need to reread Hull. You hedge your delta with stock.

And even though your argument of "delta is the derivative of a derivative" is technically correct, anyone spending 5 minutes on a trading desk knows that delta is referred to as the first derivative and gamma the second derivative.

 

[DashRiprock]

all what i know is that gamma scalping is like when you have a long straddle and you sell the futures when the delta goes too much. i never looked at it proper tho.

gamma hedging obv though is done with options cos what is the gamma of the underlying? 0!

 

[Joey25]

It's a combination of both!

The way to construct a gamma hedge involves firstly a trade to establish gamma-neutrality. This can only be done with options.

Let's assume the existing position is delta-neutral, but has a gamma of X.
Let the options used to hedge the position have a gamma of Y.

Then we sell X/Y of the new options to balance the gamma of the existing position.

However, this has now shifted the delta of the combined portfolio! A further trade in the underlying is required to re-establish delta-neutrality.