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Hello fixxer, thank you for your reply. My understanding is the reason you advocate for long gamma vs. short gamma because unhedged short gamma trade (e.g., sh
by noname123 11y ago
Hello fixxer, thank you for your reply.
My understanding is the reason you advocate for long gamma vs. short gamma because unhedged short gamma trade (e.g., short straddle) could cause theoretical unlimited loss. Long gamma trades like long straddle or long option hedged with delta-neutral stock, you are facing daily theta decay and you are betting for either a rise in implied vol or realized vol.
However, the missing ingredient/secret sauce is (1) you have to figure out at price point you're going to take profit in your scalp; and (2) when implied volatility is considered cheap for the particular ticker you're trading. Much appreciated for your insight and let me know if I'm missing anything.
- fixxer 11y agoYou've got some model of richness/cheapness. From that, you have your raison d'etre and, when combined with your view on utility and expectations, a money management strategy. Putting all that together is your business. My only opinion on the matter is that you should try to stick with leading from long gamma. You can sell vol, but you'll survive longer if you keep net long gamma. As soon as you get gamma'd, you're out of business. It can go so far against you before you even realize what happened.