# Advanced Gamma Scalping Techniques

### Mobilizing perps to dynamically hedge gamma exposures and neutralize theta costs.

**Contents**

Introduction

Understanding Gamma and Delta

Synthetic Positions

Examples

Delta-Neutral Strategies and Vega

Gamma Scalping in Practice

Example

Gamma and Theta: A Balancing Act

Knowing When to Leave the Party

Conclusion

### Synopsis

Gamma scalping is an advanced trading technique that enables options traders to hedge their gamma exposure, offset theta costs, and potentially profit from price movements in the underlying asset.

Understanding the concepts of gamma, delta, synthetic positions, and delta-neutral strategies is crucial for implementing gamma scalping effectively.

Gamma scalping involves continuously adjusting positions in response to price movements, often using perpetual contracts (perps) to maintain delta neutrality and to capture profits from price swings.

Profiting from gamma scalping requires striking a balance between the proceeds from each scalp and the daily theta costs, ensuring the former exceeds the latter.

Timing is essential in gamma scalping; knowing when to exit positions at a profit is critical for maximizing profitability and minimizing potential losses.

### Introduction

Gamma scalping is a sophisticated trading technique used by options traders to dynamically hedge their gamma exposures in response to underlying asset volatility. It's essential to understand the concepts of gamma and delta, as well as synthetic positions and delta-neutral strategies, to effectively implement gamma scalping. In this article, we'll delve into these concepts and provide a step-by-step guide to gamma scalping, along with examples.

### Understanding Gamma and Delta

Gamma is a measure of the rate of change of an option's delta. Delta serves as a barometer for what the equivalent position would be in the underlying asset, such as a perpetual swap (perp). To scalp gamma, traders need to understand and monitor the option's delta.

### Synthetic Positions

Options traders can replicate the payoff functions of other positions using combinations of underlying assets, delta-one instruments (e.g., perps), calls, and puts. Various synthetic positions can be crafted using a combination of options and perp.

**Examples **

Long Call = Long Put + Long Perp

Short Call = Short Put + Short Perp

Long Put = Long Call + Short Perp

Short Put = Short Call + Long Perp

Long Perp = Long Call + Short Put

Short Perp = Short Call + Long Put

A trader seeking capital-efficient long exposure to Ethereum (ETH) can achieve synthetic long exposure by purchasing an ETH call and selling an ETH put.

### Delta-Neutral Strategies and Vega

Options traders can trade volatility without directional risk using long vega or short, delta-neutral strategies. Long vega strategies benefit from expanding implied volatility (IV), while short vega strategies benefit from contracting IV. The discrepancy between market expectations (IV) and reality (RV) is referred to as the Volatility Risk Premium (VRP).

Popular delta-neutral strategies include straddles, strangles, and calendar spreads. Traders often choose long vega, delta-neutral strategies when IV is trading at a discount relative to realized volatility (RV). However, these positions have negative theta, meaning their time value continuously erodes as expiry approaches. To offset this decay, traders can rebalance their positions to hedge their deltas while potentially booking a profit. This process is called gamma scalping.

### Gamma Scalping in Practice

Consider a long straddle with a zero delta at the outset of the trade. The 0.50 delta of the long call is offset by the -0.50 delta of the long put. However, this changes with underlying price action, necessitating gamma scalping.

**Example**

Suppose SOL trades at $20, and you open an at-the-money (ATM) long straddle for $5.00, paying $2.50 for the long call and $2.50 for the long put. If SOL rises to $22, your straddle is worth $5.50, but you're no longer delta-neutral, with a net delta of 0.4.

In this scenario, a gamma scalper might short the equivalent quantity of perps needed to rebalance their net delta back to zero. If SOL dips back to $20, the trader can close their short perps position at a profit, logging a successful gamma scalp . If the price of SOL had instead decreased, the trader could have executed a gamma scalp by longing a perp to neutralize negative delta.

### Gamma and Theta: A Balancing Act

To profitably gamma scalp an options position on any given day, the proceeds from each day's scalp must exceed the day's theta costs. Gamma scalping is essentially a tug-of-war between gamma and theta.

The primary utility of gamma scalping for traders is to offset the theta costs associated with long-volatility, delta-neutral strategies. For this reason, it's crucial to diligently plan your exits and not get greedy.

### Knowing When to Leave the Party

When IV rises to your target level, it's time to close your position at a profit. Keep in mind that theta costs only increase as expiries draw closer. Therefore, timely exits are critical to maximizing profitability while gamma scalping.

### Conclusion

Gamma scalping is a valuable technique for options traders to hedge their gamma exposures, offset theta costs, and pad their books. Understanding the concepts of gamma, delta, synthetic positions, and delta-neutral strategies is invaluable for navigating derivatives markets with tact. By diligently monitoring and adjusting your positions, you can reduce your downside risk while simultaneously booking additional profits. Ready to try your hand at gamma scalping? Dynamically hedge your options positions with perps on Zeta.

Dispersion trading is an ETF/index arbitrage strategy that consists of trading the difference in the volatilities between an ETF/index and its individual stocks. One can set up a dispersion trade by buying straddles on the stocks and selling straddles on the ETF/index. Dispersion trading works, because ETF/indices tend to move less than stocks, opening up chances to profit from these mispricing.

https://thetatitans.com/home/dispersion-trading/

https://huggingface.co/datasets/Dispersion/Dispersion/blob/main/readme.txt

https://github.com/arctictrader13/Dispersion-trading/blob/main/README.mdhttps://en.wikipedia.org/wiki/Correlation_trading

https://r1.community.samsung.com/t5/others/3-usa-states-are-hoping-for-samsung-to-invest-in-their-chip/m-p/25172766/highlight/true#M23594

https://www.quora.com/Why-are-dispersion-trades-short-volga-Going-short-index-implied-volatility-and-going-long-single-stock-implied-volatility/answer/Arctictrader?ch=15&oid=1477743722378172&share=e2c71c35&srid=XvvWu&target_type=answer

https://medium.com/@dispersiontrader/dispersion-trading-0bdf6f46b656

https://www.imdb.com/title/tt25187488/

https://medium.com/@dispersiontrader/dispersion-trading-0bdf6f46b656

https://www.slideshare.net/slideshows/dispersion-trading-is-an-etfdocx/265531920

https://maxonblog.hatenablog.com/

https://forums.developer.nvidia.com/t/accelerated-portfolio-construction-with-numba-and-dask-in-python/192696

https://deusexdao.substack.com/p/grid-trading-part-i-an-alternative/comments

https://quantifiedstrategies.substack.com/p/supertrend-indicator

Dispersion trading exploits the variance in expected volatility between index options and options on the individual stocks of the index. Generally, the implied volatility in index options is not low enough compared to the implied volatility in stock options. This inconsistency leads to opportunities to benefit from the fluctuating spread.

Why do we love this strategy?

Dispersion trading is a low-risk strategy where you either make a small profit or hit a big jackpot. It's safe because ETFs and indices usually don't swing wildly. But if a stock in your trade suddenly jumps or drops due to major news, you could earn a lot from the bet you placed on it. And if nothing much happens in the market, the small profits from your short straddle in the ETF or index trades will cover the costs of your long straddles in the stocks.