TSC Options Forum
Steve,
Even though I know the definitions of the "Greeks," I have trouble trying to understand the lingo of postings by experienced option traders and applying them to specific situations. I hope that you might explain some of these concepts:
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What does "gamma-scalping" mean?
What does "short a whole lot of vega" mean?
Why do "index options have less volatility but more opportunities for gamma-scalping"?
Swimming in Channeling Stocks
Scalping gamma is a fancy way of saying "I'm trying to buy low and sell high as the price of the underlying stock moves back and forth within a trading range." In last week's Options Forum we defined gamma as the rate of change in an option's delta (the rate of change in an option's value per a unit change in the price of the underlying security), and showed that its slope decreases as options move into the money and the delta approaches a maximum of 1. One way to scalp gamma would be to buy straddles (buying both puts and calls) and using the leverage to sell into rallies or buying dips. The keys to trading gamma are maintaining a somewhat delta-neutral position and choosing an issue that trades in a relatively wide but predictable price range. While gamma-scalping is usually based on being long premium, i.e., having a position in which the value of all options purchased is greater than the value of all options sold (otherwise known as a net debit), its success isn't necessarily dependent on a volatility play.TheStreet Premium Services
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