I am always fascinated with people who can make consistent profits BUYING options. I found below videos very interesting. If you guys have any good resources on gamma scalping (or reverse gamma scalping), please share.
I absolutely love that guy, Wayne Wayne Himelsein. It seems I do a bit of what he is doing and have similar opinion on many things, especially volatility, while he also thinks that quants get some things wrong and can't solve every problem with pure math. But he doesn't seem to utilize much Gamma scalping, at least not in common way. He mentions Gamma couple times, but not that much, and his "Gamma scalping" simply means that he may stay in position and adjust it, vs getting out and collecting specific profit on a trade. Also, people can Gamma scalp any stock or trade IV on stocks, while he mostly trades pure market volatility as VIX or SPX puts. So he really doesn't relate much to common Gamma scalping. As I understand it, Gamma scalping simply means continually Delta hedging or "rolling your position", except you can roll/adjust the number of shares instead of rolling an option. You profit from volatility, which has impact on Gamma, but it really just means that Calls may get relatively more expensive when the stock rapidly goes up, for example. I sometimes scalp Gamma too, although I may do this without actually using Gamma or Greeks, just calculating my own way how I'd like to hedge or offset options with shares. A Gamma scalping example may be buying a 50-delta Call and selling 50 shares to hedge it, thus being delta hedged and near delta=0. Here is an example with Zoom (ZM) This is basically a straddle and works the same as a straddle, but requiring less capital and being more liquid than a straddle since you're buying only one option, while can easily buy or sell shares to adjust your position later (like rolling). To make a profit you'd need the stock to make a strong move up or down. And here is how such trade would've worked in the past 2 weeks, when ZM isn't as volatile as in the past, basically this trade would've lost money: Top chart is the trade/position (Call + short 50 shares combo), middle chart is the stock price itself, and the bottom chart is the IV of the stock's options. Notice how the top chart looks similar to the bottom chart with IV. So basically such trade allows you to trade IV/volatility of the stock. If the stock will make a strong move up, then the Call's value should increase so much that it should offset the loss on 50 short shares. Or if the stock price goes down then you'd lose some $s on the Call, but make profit on the 50 short shares. In either case you could then get out of the trade with profit. But a Gamma scalper will not take immediate profit, but will continue staying in the trade, adjusting his/her shares to get back into the same trade and stay at Delta=0, thus basically "rolling his shares" rather than rolling an option. While a regular trader may close the whole position and open a new one, again betting on another move. It may be just more expensive to sell the current option and buy a new one. So Gamma scalpers simply keep the option(s) they already have, while only adjusting number of shares to stay in the position. Personally I don't care for Gamma scalping too much because I try to buy volatility at low price and when I make a profit then it means that IV went up, so I'd prefer to close my position and wait for low IV again. Though I may occasionally adjust my number of shares before I get out of position. Of course it would be nice if a pro Gamma scalper provided more or better info.
Well, you'd have to define consistent, but there are plenty of people (myself included) that have a slight long gamma lean. The general idea is to (a) find the right time to buy gamma, (b) have a proper approach to rebalancing your delta, one that possibly includes some sort of a directional bias and (c) sell other risk-premium against it (e.g. vega or skew) to offset the decay
The right time would have been when the realized volatility was higher than the implied one. Tricky bit is recognizing this kind of situations beforehand
I guess it's not what conventionally thought of as gamma scalping, but in the first video they go: "Mike: You are not really trading volatility, you are trading gamma." "Wayne: Right, ware scalping gamma." So my understanding is that they have a core position in a long straddle and then trim the side which gains deltas. Then get back to normal position size. I think he mentioned that they have automated rules where let's say for each 5% move in UL, they take off 5% of the position (just example, not actual numbers). In a low vol environment, can they really cover the cost of theta of the whole position scalping little bit here and little bit there? I guess their goal is just to reduce the bleed, not necessarily eliminate it completely.