Well no, gamma is an input in the way that it affects how fast delta moves. The option price is supposed to be the output. The option price does not determine how much gamma is there. It's P(t+1) = Underlying X (+-(delta) X (1+ gamma)) So when delta is 1, gamma is 0, then it's just P(t+1) = Underlying) X 1. But that's not the case during those extreme market events like on Monday, Oct. 19, 1987. That's why I say unless you have the option chain of SPX from that day, then you can't really confirm to me that gamma was really zero on that day just because the options were EDITM. And according to this article from Seeking Alpha here, "Option Gamma can be a more extreme measure than 1 or -1 because there is no upper limit to the achievable Gamma values, however it is a rare circumstance." https://seekingalpha.com/article/4468397-gamma-options?gclid=Cj0KCQiA-JacBhC0ARIsAIxybyPlt9n5UXA9e4jmuqbg09kW72aN2BkY6Z7_qo89d6g0Di55U_N3SYUaArQsEALw_wcB&internal_promotion=true&utm_campaign=18367158427&utm_medium=cpc&utm_source=google&utm_term=141065816363^dsa-1485125208378^^622615738517^^^g Unless the author means something else but "no upper limit" means the possibility of infinite gamma. This is not even a theory that's been invented by me. It does exist. Ok I appreciate you are trying to help me understand how MM's work but I am not understanding some of the terms. What do you mean by "20,000 up" and "300 up"? I know what you are trying to illustrate here (that's actually what happened with the GMC gamma squeeze with all the retail traders buying up GME calls and MM's for the options couldn't hedge properly because there weren't enough GME shares and on that day I bet that's another case where gamma probably went into infinite) but it still doesn't explain how circuit breakers and market closing works to stop the price pressure because ALL the markets are stopped. I mean in this case, the buyer of these ATM calls would not be allowed to buy but you wouldn't be allowed to make markets either to satisfy the demand of the caller sellers who just went to your stock market to try to hedge. And when the circuit breakers is lifted or the market is re-opened, the price pressure would still be there because those demands would still be outstanding. That's why I am puzzled why the price pressure would all of sudden dissipate after a circuit breaker/market closing takes place. If the price pressure can just dissipate like that, why couldn't it dissipate BEFORE a circuit breaker/market closing takes place?
I guarantee you he never took a calculus class and if he did he slept the whole way through. If you don't realize the term derivative can refer to both, a financial contract and a mathematical concept you'll think gamma can be anything under the sun and no amount of arguing is going to help.
YIKES....You love to complicate shit..Keep it simple... Lets say there is a 1 out of 1,000,000 chance there is some credence to your infinite gamma theory..Now what?? Show me the option calculator you are using that asks to input your estimate of future "Gamma",and how much money you have made off of it You need to decide if you are in this to make money or prove you are right
I think I have already proven that infinite gamma does exist with this article https://seekingalpha.com/article/4468397-gamma-options?gclid=Cj0KCQiA-JacBhC0ARIsAIxybyPlt9n5UXA9e4jmuqbg09kW72aN2BkY6Z7_qo89d6g0Di55U_N3SYUaArQsEALw_wcB&internal_promotion=true&utm_campaign=18367158427&utm_medium=cpc&utm_source=google&utm_term=141065816363^dsa-1485125208378^^622615738517^^^g and what happened on Black Monday. Since it's an extremely rare occurrence, I am not sure if any conventional option calculator would be able to accommodate it but I can tell you according to the formula that I showed you in my previous post, with infinite gamma, the amount of money that I can make off it would be infinite as well because in math, anything multiplied by infinite is infinite. And if I am long vol, this existence of infinite gamma should be able to make me an infinite amount of profit as long as it's not stopped by a ballooning theta. 1/10000000000000 of a chance of making an infinite amount of profit is still an infinite amount of profit. And I just need to be careful when I am shorting because that could also mean an infinite amount of loss for me unless I hedged (and that also explains why naked shorters can be screwed really badly because they are facing a possibly infinite amount of loss) There, is that simple enough for you? LOL
Seriously,a mind is a terrible thing to waste... Yeah,infinite gamma.....take Volatility down to less than 1,i.e 0.5 as opposed to 50%,and DTE 1 or less....Great,your gamma will exceed 1,assuming the instrument has close to zero vol with 2 seconds left on the clock...Now what?? Black Monday illustrates how clueless you are..What happened is exactly the OPPOSITE of what happens in your mind..You dont explode Vol to get "Infinite" gamma. You "theoretically" reduce it to as close to zero as possible,and shorten the DTE as in less than 1 day,hours or minutes. Maybe I am mistaken,but I thought Vol went up on Black Monday.. Take a deep breath and have a nice cup of STFU
Firstly, spare me the condescending tone. Secondly, when buying a cal, sure there is gamma risk, but the theta and vega are working in the traders favour. With your proposal of selling a cal, the gamma works for the trader, but the theta and vega will kill the trade. I would rather have 2 Greeks working in my favour and 1 against me, than the other way around. And I totally disagree with the "short term vol is always lower than the long term vol.".
OMG!!! It's so complicated with all those "Vol", "DTE"!!! KISS!! LOL What happened to that? See, when I keep it simple, you bombard me with all these technical terms and jargons but when I try to explain to you with mathematics and my theories, you tell me to KISS. LOL Whatever you just want to win. Fine, you win, infinite gamma does not exist. There, you happy? LOL Anyway I have done everything to prove that a phenomenon of "infinite gamma" does exist and I don't think it can be explained by the conventional option pricing model with regards to vol. And I have always said that it's the extreme increase in vol. that could actually drive gamma to infinity. I am done here.