Gamma Scalping

I have been paper trading Gamma Scalping but the best I can do is break even. The profits I can earning from the scalps just cover the time decay on the call option. I liked the idea of gamma scalping when I was researching different option strategies because I can remain delta neutral.

 

What are you trading? Can you be more specific?

 

Hopefully you're using limit orders on your entries and exits?

 

I am buying 10 SPY ATM Calls about 90 days out and shorting stock against the Call to make the position deltas neutral. I am adjusting the stock position every time its +100 and -100 delta's but as I said previously the scalps just cover the time decay.

 

Well, pretend you didn't do this. You wouldn't be covering the time decay and hence lose even more money. The entire purpose of doing this is to mitigate losses due to gamma while waiting for a gain due to an increase in vega.

 

If the options are priced fairly, your result is in-line with what you should expect from a delta neutral strategy -- breakeven.

Try some other ideas -- i.e. maybe go shorter (1 month), move away from the money.

 

With Going shorter and moving away from the money. Do you think this will give me a chance of consistently earning more than the time decay.

 

No - because the entire point of this position is that you're long vol. If your call on volatility is wrong, then you don't make money. There's no difference between this and any other kind of trading - either your call was right and you make money or it was wrong and you lose money; however with scalping/hedging you hopefully lose less money due to things you weren't concerned with (direction/delta/gamma).

NO FREE MONEY.

 

Gamma scalping using retail account???

 

I disagree i960. Depending on which area of the strike space you are trading, if the surface is skewed/convex, you have a bunch of different options trading at different prices. Whether or not my trade makes money is dependent on vol forecast as well as the prices I paid for the strikes I chose. If I forecast vol to be 15% and the ATM options are priced at 15% and the upside calls are priced at 10%, my trade selection matters significantly. If I buy ATM, I expect to breakeven. If I buy the cheaper upside, I expect to profit.