Gamma Scalping 102 – The Undisclosed Risks

TASA ID: 13992

This article was originally published on NavesinkInternational.com and in Albourne Village, village-us.albourne.com. 

OptionSellers, LJM, Catalyst are among the prominent fund managers currently facing litigation for large losses due to short gamma positions. Retail investors regularly lose their savings by shorting options as well. It is time to explain a few things about the short gamma and the “gamma scalping” strategies.

This article is split in two parts for convenience. The first part, Gamma Scalping 101 – Gamma/Theta Trading, explained:

  • How the daily P&L of a portfolio of derivatives can be expressed with a simple parabola.
  • The concept of break-even, and when gamma brings more value than theta.
  • How historical and implied volatilities explain the gamma scalper’s long-term P&L.
  • How this trader can improve his odds by trading options of high implied volatility.

This second article explains some of the un-stated risks associated with the gamma scalping strategy.

To read the complete article, click to download the PDF below.

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Tasa ID13992

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