taking gamma out of the trade

Discussion in 'Options' started by trading1, Jan 5, 2013.

  1. Hello

    I am reading an article and the author's theme is that by "taking the gamma out of the trade" the setups work. Any idea what this means?

    He is talking about trading around big events where the RV soars and he addresses the eventual convergence between RV and IV.

    What sort of trade would this be, an ATM straddle? And what is meant by "taking the gamma out of it" ?

    Any help appreciated?
  2. tayte


    He most likely meant hedging gamma, so your portfolio's net gamma~ 0.
  3. Yeah, traditional "gamma-trading" is not really gamma trading at all, as the convexity is unaltered, but the gains from gamma are taken in an opposing position in shares. You can also gamma trade in volatility, but it alters other greeks when getting flat the gamma. The share trade only impacts your delta position.

    You should distinguish gamma trading (shares) from hedging (convexity).