Great old threads about Gamma scalping

Discussion in 'Options' started by IV_Trader, May 8, 2006.

  1. Over a weekend I read some good staff about this subject ; the threads are from 3-5 years ago. With current low commissions and 4:1 intraday margins I wonder if this strategy became more attractive/profitable in those days.
    I trade this strategy with individual stock ; does anyone scalping indices ? Weeklies ?
  2. Choad


  3. I think even IB commissions are too high to make this worthwhile in general for Joe Retail. In addition, Reg-T is very limiting.

    If you're at a JBO and have sub 50c/contract commissions with market maker haircut - might be worth looking at as a more routine strategy.

    To answer your question, I have gamma scalped QQQQ or SPY option positions in the past but in a highly discretionary manner. Mainly in an attempt to mitigate decay.

    I'm sure you can get it to work under the right circumstances even in a retail enviroment but the effort/reward seems too high for me.

    Good luck!

  4. tman


    I've been experimenting with this for a few months. My initial experience were b/e. My last three or four positions have been modestly profitable, though I am pleased on a risk adjusted basis. The key is in primary trade selection, trying to pay a little for a lot of volatility. I have tried a few approaches. The adjustment trades are painfully boring. I do adjust intraday, I use IB's unbundled commisions and add liquidity.
  5. Agree , very boring. BTW , you can enter a few limit orders ( if you adjust via stock) ; those can easily be pre-calculate. Again , I trade this strategy on individual stocks ( with expected rise in IV) , but I started to back test it for indices (and no exp change in future vols ). Mostly b/e except for the last week of expiration ( all winners)
  6. Maverick74


    I'll make a few points here. One, you absolutely cannot do this in a Reg T account. You'll have to put out too much capital for too little return. You need a haircut.

    Two, do not make the mistake of trying to buy cheap vol. You need to buy very expensive vol into either earnings or some other volatile event. Do not hold through earnings. You will usually see increased stat vol running into numbers. You will also experience flat decay across the board as vols increase as time decreases. It's actually possible to pay 5 pts for a straddle 3 weeks into a report and sell that same straddle for 5 pts right before the announcement and scalp the stock for free for 3 weeks.

    No, this doesn't happen often and no, this is not free money. You will work for it and you will need to know what to look for. Just whatever you do, don't do this in a retail account. You'll make more money in a CD.
  7. tman


    I only adjust with stock. I do precalc and enter limit orders, but still re-enter orders periodically through the day because if I'm lucky, the stock will bounce between two adjustment points several times. I love expiration week with the stock near the strike. I do have to start rolling strikes, but I'm trying to adjust my methods incrementally to get a feel for what is causing improved results. One thing that I learned was that my profit is lower when I adjust by feel. That is, trying to catch tops/bottoms. I personally need to stick to delta neutral adjustments.
  8. Mav , that's exactly what I'm doing ( stocks into earning with free scalping) and very profitable for many years. But as you correctly stated , those trades are not always available and that's why I am trying the same with Index.
    With existing vols skew for OTM puts&ITM calls , do I have a small edge in scalping if I take the under market position like ITM put+OTM call ?
  9. Use the moving hi-lo and open-to-yesterday-close averages , this should help. Also , close all positions ONE day before exp.
  10. tman


    Why close day before exp?? I like riding the straddle right into the beach. Thanks for your insights!!!..........tman
    #10     May 8, 2006