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options trading when you calculate risk/exposure of your position, you want to consider Delta and its derivative, Gamma. But you also need to consider the rate
by mdcds 4y ago
options trading
when you calculate risk/exposure of your position, you want to consider Delta and its derivative, Gamma. But you also need to consider the rate of change of Gamma.
- drexlspivey 4y agoMore specifically, if you are a market maker and are in the business of selling options you want to hedge your portfolio. To do that you need to buy a certain amount of shares of the underlying that you sold calls on. As the price of the stock goes up you need to buy more stock (delta) but also the rate at which you need to keep buying stock increases (gamma). The fact that you keep buying stock as the price goes up further pushes the price up and can shoot the price to the moon (gamma squeeze)