Gamma Scalping — Profiting from Quick Price Changes

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Gamma scalping is an advanced options trading strategy that capitalizes on frequent and unexpected stock price movements. It involves holding a long options position, typically a straddle or strangle, and dynamically hedging with the underlying stock to capture profits from short-term fluctuations. This strategy is widely used by professional traders, market makers, and hedge funds to exploit volatility while maintaining a neutral directional bias.

At its core, gamma scalping relies on three key options Greeks: delta, gamma, and theta. Delta measures how much an option’s price changes relative to a $1 move in the stock, while gamma measures the rate at which delta changes. A higher gamma means delta shifts more rapidly, allowing traders to profit from quick price swings. However, options lose value over time due to theta decay, meaning that gamma scalping must generate enough profits from hedging to offset these losses.

To execute gamma scalping, a trader first establishes a long options position by buying a straddle (at-the-money call and put) or a strangle (out-of-the-money call and put). This setup allows the position to gain value whether the stock moves up or down. As the stock price fluctuates, delta changes, creating an imbalance. When the stock rises, the call option gains value, increasing delta and making the position…