Prashant Mullick⚡ Profile picture
May 29, 2018 15 tweets 13 min read Twitter logo Read on Twitter
The God of #Options #Greeks is often disregarded and has no mercy, especially on #Options #expiration day.

A #Thread on #Gamma.

The primary feature of #Options is their non-linear payout.

Most traders understand that #OptionsPricing is dependent on the price of the underlying, but the response is non-linear. #Gamma is the variable that describes this non-linearity.

Loosely, if #Delta is the speed of the #Options position, #Gamma is the acceleration.

#Gamma also describes how stable the position's #Option #Delta is.

A high #Gamma means the options delta can change fiercely with a small change in the price of the underlying.

Long options positions (calls or puts) always have a positive #Gamma.

Short options always have a negative #Gamma.

A Futures position has a zero #Gamma, as the #Delta is always 1 and never changes.

Some call it #MountGamma.

This is how #Gamma changes across strikes from ITM, ATM to OTM.

See the peak of the #MountGamma at the ATM strike.

The #Gamma peak for ATM strikes means that the #OptionsPricing is most sensitive to smaller changes in stock price for ATM options.

I like the word #fiercely sensitive.

So what makes #Expiration day so intense?

This is what happens to #Gamma as we get closer to #expiration.

#Gamma spikes at ATM strikes.

Some might say big deal, we'll just do more #OptionSelling as the position goes against us on expiration.

The trader is then faced with the classic negative #Gamma #OptionsTrading problem.

The Negative #Gamma Trading Conundrum:

For fun we'll use the $BankNifty and hypothetical 31-May expiry.

$BankNifty opens at 26300 and a fancy options trader named Sunjay sells a far OTM #strangle at 25500PE/27000PE at 10AM for a princely sum of ₹10.

Immediately after stabilizing at open, at noon there is news of Italy default. Dow futures get slammed, World markets are in a tizzy.

Our $BankNifty tanks by 400 points.

The #Strangle that Sunjay sold at ₹10 is now trading at ₹80.

But Sunjay is a smart and smooth trader. No panic. He has seen this scenario play out several times.

He calmly closes his 27000CE which is now almost ₹0.05 and with the BN at 25800, he holds his 25500PE and sells the 26100CE to balance his position.

Nothing happens for the next hour and markets stabilize.

Sunjay's #strangle net price is now back down to ₹60. He aims to close this out at 0 today.

At 2pm, things change. Turns out Italy will get bailed out after all. Markets swing back and buying starts furiously.

BN spot turns back 300 points in the same 5M candle and is close to the 26100CE, now trading close to ₹100 itself.

What does Sunjay do?

This is a work of fiction. Names, characters, are either the products of the author’s imagination or used in a fictitious manner. Any resemblance to actual persons, living or dead, or actual events is purely coincidental.


• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with Prashant Mullick⚡

Prashant Mullick⚡ Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @VohiCapital

Sep 16, 2018
Don't get into #OptionsTrading with less than 25L if primary engine is #OptionSelling

Don't create focus on return in trades.

Read 20 tweets
Aug 13, 2018
Traders need to check their ledger not daily MTM PNL statements.

Selling of deep ITM options to hide and carry forward losses is a common practice amongst unscrupulous "sub-brokers" illegally managing others money in #OptionsTrading.
There are no mandates from @SEBI_India on allowing "sub-brokers" or any party to trade and manage client funds in #OptionsTrading.

Certainly no mandate to take leverage of the sorts usually taken.
@SEBI_India Even AIF Category 3 norms don't allow leverage upwards of 2.

Beyond that, even an AIF cannot solicit funds from the public openly.

More on these norms here:…
Read 4 tweets
May 27, 2018
A lot of chatter on my TL about the #edge in #OptionsTrading, specifically #OptionSelling.
A lot of good information but some mis-information being spread as well.

A #thread.
First off, #OptionSelling by itself is NOT an edge.

Simply by selling an instrument that decays in value over time, doesn't give one an edge towards profit. It is accompanied by short gamma and rising #volatility working "against" you.

The #volatility #edge or premium expresses itself when the underlying moves "less" than the move that is priced in the options.

Read 17 tweets
Mar 12, 2018
Some of my #takeaways & #notes from various #DECMA sessions this weekend. (1/n)
By @madan_kumar
- Build a rock solid trading plan
- Treat trading like a business
- Limit your time spent with the trading business
- Take the extra time that trading allows you to have and spend it with your family
By @Raminations
- Use all experiences positive and negative for building future plans
- Understand the products you are trading to the smallest details
- If a position or trade is giving you sleepless nights, get out of it immediately the next morning.
Read 19 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!


0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy


3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us on Twitter!