What's the definition of "very profitable"? If you're gamma scalping, the stock portion is going to negate some of the gain on the long straddle component while you lose on the short legs. You know, that problem that IV_Trader mentioned about gamma scalping a non linear curve ? And how does this jive with your previous comment? >> ... remember that with gamma scalping the further the market price moves away from the strike price, the less profitable it becomes. Therefore, it's an inherently limiting strategy to begin with, as with all spread strategies. <<
the options,that you use for scalp are the actual hedges. you can not build scalping position with a butterfly,because you dont have open legs on which to scalp. your fly will get into high risk gamma play,instead of gamma scalp,because your scalps will be more short options,than long. best scalping method to start is to buy 10 futures and buy 20 ATM puts. on every 10 points move in spx you short ATM option,when it reverse-on every 10 point you close the shorts and cash in. ATM option scalp with 50 delta will make you 250$ profit on a swing,take the cost of trade,and you will get between 150-200$ from each swing. if you buy straddles,the initial investment is more costly,and the theta is a killer twice as much. forget the fly-this is not a scalping strategy,its a directional play
I'm not sure how to calculate the outcome; however, I believe that the theta & negative IV loss avoided with both spreads would more than compensate for the gamma/delta loss associated with the short leg... If I'm fundamentally wrong, then I guess I'll go back to the drawing board of the traditional gamma scalping...
buying the synthetic straddle is almost certainly no cheaper than the natural and has similar theta burn.
1.this is not a synthetic straddle 2.its 50% cheaper,because max loss is the primium of the options,your futures are 100% hedged-no need for margin r. if you do straddle ,you buy 100% more options 3.how can you say that theta is the same,when with the straddle you have twice more long options?
Walt, when gamma scalping works, it's magic But if you sell and the stock moves higher and you sell some more and the stock moves higher and you sell some more... You will not have any profits. That's the gamma scalping story. Market makers do it - not so much to make money - but more to minimize risk by remaining near neutral most of the time. Mark