Basic knowledge of options, Part 4 (Gamma)
Gamma indicates the sensitivity of the Delta value of an option to the price change of the underlying asset, that is, gamma is a parameter used to measure the change of the delta value. When the option is close to expiration, the gamma value will become larger, and a small change in the price of the underlying asset will cause a large change in the Delta value.
Simply put, you can remember two points. First, the gamma value of at-the-money options is the largest, and the real-money and imaginary-money options decrease towards both ends. Second, the shorter the expiration date, the larger the gamma value.
Therefore, a strategy specifically for gamma values was born, called "Doomsday Lottery".
It is to buy at-the-money call and put options that are close to expiration, and then bet on the huge fluctuations before expiration.
Once the bet is successful, due to the huge gamma value, the income will surge by dozens or hundreds of times.
However, nine out of ten bets are lost, and the doomsday lottery betting on gamma can basically win once or twice in a hundred times, and the average income and expenditure are equal.
How can the law of nature be allowed to be free lunch?
There is a gamma transaction on the Deri platform. It is a new product that makes profits by going long or short on the gamma value. It makes the doomsday lottery a daily routine. If you are interested, you can study it. Its visualization chart clearly depicts the yield curve of gamma trading.
