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More About Gamma - Options Mastery Series Lesson 13

Filed Under Options Mastery Series 

Ron Ianieri, one of the founders of Options University used to be a floor trader and market maker and he has mentioned that as the “insiders” on the trading floor were replaced by computer trading, something the traders used to do is starting to become more popular with the retail traders…. something called Gamma trading.
 
The subject is a bit complex and has spawned a special 8 hour course on Gamma Trading presented by Options University. But to give you some taste of how Gamma is used, we will try to give you an idea of how it works.
 
Gamma trading is a way of setting up using options, a Gamma position and then flipping the stock back and forth when the Gamma makes you long Delta or when the Gamma makes you short Delta. The beauty of this is it’s great for day traders because day traders could now flip the stock back and forth in a hedged fashion. Remember that Gamma is a key in forecasting Delta and its effect on option pricing.
 
Another cool thing about Gamma trading is the resolution of one of the toughest things about being a day trader- getting off on the right foot, to make that first correct trade. If an option trader is unsure or doesn’t have a good feel about the first trade, they can step aside and let Gamma make the first trade. Remember as soon as the stock moves the Gamma position is either going to buy you or sell you Deltas to keep you properly hedged. The beauty of it is Gamma is never wrong so your first trade will always be a winner if you let Gamma make the first trade.
 
If you’ve done day trading, you normally never hold a position overnight. Too much can happen. However, because you have Gamma you can also be properly hedged. As a result, a day trader can carry overnight positions that are hedged. Ron Ianieri, designer of Option University’s “Gamma Trading” course relates the following: “How many times have you bought a stock, it has run up pretty good during the day, big volume, traded up all day and closes on the high. You know that the stock is going to open up the next morning, but the problem is you can’t carry an overnight position. Why? Because you’re unhedged”.
         
Gamma traders have the benefit of being able to use the Gamma as a hedge or to use it offensively. So a knowledgeable Gamma trader can be a passive by letting the Gamma trade for him/her or the Gamma trader can be an aggressive by using the Gamma as a hedge.
 

To learn more about the growing popularity of Gamma trading, contact Options University (www.optionsuniversity.com) and find out when they will be presenting their next course on Gamma Trading.

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