Registered: Oct 2012
10-04-12 07:32 AM
I've read some threads about gamma scalping, and I find those who familiar with this strategy believe that, when you long straddle and scalp the underlying, the low implied volatility is the key to profit. Because you are trading the realized volatility against the implied volatility. This is correct and obvious.
However, my question is what realized volatility are you actually trading? As I know, when you do gamma scalping you can rebalance the delta frequently, like in every 30 minutes or in every 0.5% of the price move. In that case you are trading the intraday realized volatility, and the implied volatility of the option is based on the time to expiration, which can be few days or few months.
In most time, the intraday realized volatility, which means you calculate the volatility on hourly or minute basis, is much higher than the daily realized volatility. For example, from the price of options we know the current implied annual volatility for SPY is 14%, but if you calculate the realized volatility on hourly samples, the annual volatility will be 30%!Does that mean we can have a huge theoretic edge to do the intradat gamma scalping?